While India is battling its weakest growth in two years, the central bank’s decision not to lower interest rates on Wednesday has upset the Narendra Modi government.
Just hours after the Reserve Bank of India (RBI) kept its benchmark rate unchanged at 6.25%, the chief economic advisor, Arvind Subramanian, criticized the move and said that economic conditions warranted a substantial monetary easing. He said, “In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing,” reports Business Standard.
Subramanian pointed out that inflation too has declined and criticized RBI for overstating it in its forecast. “RBI’s inflation forecast errors have been large and systematically one-sided in overstating inflation,” he said.
Earlier before announcing the interest rates, RBI’s Monetary Policy Committee (MPC) refused to meet finance ministry officials for a pre-policy meeting. RBI Governor Urjit Patel said, “The meeting did not take place. All the MPC members declined the request of the finance ministry for that meeting.”
The government had called for a meeting with MPC just ahead of the policy meet. The move was widely criticized as government attempts to influence RBI’s interest rate decisions.
The MPC members’ defiance and the government advisor’s criticism of RBI show that all is not well between the India government and the central bank.