Beena ParmarMoneycontrol
Humorist and actor Will Rogers once said, "An economist's guess is liable to be as good as anybody else's."
This quote was explained well when the Reserve Bank of India Governor Urjit Patel — who has announced three monetary policies since taking charge in September last year — has proven a majority economists wrong in all the three policy decisions.
In a rare interview and his first since he became RBI Governor, Patel on Friday opened up on the latest monetary policy decision and the factors that will curate the future interest rates. In the wake of changing global dynamics, central banks across the world have had to take stronger policy actions given the various financial implications.
In the Network 18 interview, two weeks after the monetary policy announcement, Patel reminded the market that interest rate decisions may grow unpredictable even as the RBI will continue its focus on the government mandated inflation target of 4 percent. The RBI will strive to support stable growth while keeping the global factors, including the US policy, in mind, he said.
Decoding the interview, Rupa Rege Nitsure, Group Chief Economist, L&T Finance Holdings said Patel clearly stated that the monetary policy journey will be data-dependent, going forward. “While the accommodative stance was consistent with rate easing cycle, the neutrality mode would give RBI a much-needed flexibility to move in any direction as warranted by the circumstances. This is needed today in view of the increased uncertainty in the global economy created by the new Trump administration in the US which may create episodes of financial market disruptions,” she said.
While assuring that India is well-prepared for any global financial turmoil, Nitsure said, "Patel tried to give comfort on demonetisation and the neutral policy stance which was a big surprise for the markets giving rise to some kind of nervousness."
Saugata Bhattacharya, Chief Economist with Axis Bank said, “RBI Governor Dr Patel speaks rarely, but when he does, conveys the forthrightness, clarity and conviction which is the imprimatur of the most credible central banks. An unremitting focus on taking CPI inflation to a ‘central tendency’ of 4 percent and keeping it there on a ‘durable basis’ is deemed absolutely necessary for this stability.”
Bhattacharya recalled earlier Monetary Policy Committee recommendations headed by Patel which identified CPI inflation as the “nominal anchor” for macro and currency stability, in the aftermath of the currency crisis of mid-2013.
“The recent interview reinforces and elaborates on some of these earlier comments,” he said. While the market continues to expect directions from RBI on monetary policy, for now Patel has directions for the government that “supportive policies and more work is needed so that these benefits are not only tangible but are long-lasting and durable”.
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