The lone dissenter among India’s monetary policymakers believes that the central bank’s credibility in targeting inflation is being jeopardized by keeping policy loose for too long and focused on the pandemic‘s effects.
In an interview last week, Jayanth Rama Varma, a member of the committee that votes on the Reserve Bank of India‘s key policy rates, stated, “Keeping an accommodative attitude for too long risks rising interest rates in the future.” “To keep its credibility, the central bank may have to intervene later than it would have had to if it had acted sooner.”
The RBI, led by Governor Shaktikanta Das, has kept rates low to stimulate growth while predicting that inflation, which has already been above the bank’s goal range, will reduce later this year.
Economists are skeptical of its dovish position, which was reinforced most recently at its policy decision last month, while other central banks, led by the Federal Reserve, signal normalization as inflation pressures increase.
Varma began voting against the MPC’s stance in August, after previously expressing disagreement to language about being accommodative “as long as necessary” to stimulate growth and mitigate the impact of Covid-19 while keeping inflation under control.
“The moment has arrived to get rid of the Covid nonsense from monetary policy.” The economic problem is unrelated to the pandemic, according to Varma, a finance professor at the Indian Institute of Management in Ahmedabad. “Accommodative monetary policy implies that the danger is limited to poor growth and low inflation, which I no longer believe is the case.”
Here’s a little more from Varma’s interview:
“My concern isn’t that we’re falling behind the curve. My concern is that we will slip behind schedule. Tomorrow’s circumstances may necessitate a change in the policy rate, but we have essentially stated that we will not.”
“In that scenario, what I see as highly crucial is that the central bank maintains its freedom of action,” Varma said of Russia’s invasion of Ukraine and the imminent hazards to the global economy. You have no idea what’s going to hit you from whatever direction. As a result, I am very wary of the central bank committing to what it will do in the future.”
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