The Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel will make the resolution of the Fifth Bi-monthly Monetary Policy Statement for 2017-18 public on December 6. However, a member of Prime Minister’s Economic Advisory Council Ashima Goyal is already despondent with the RBI and labels its predictions “overestimated.” In an interview with Bloomberg on Monday, Ashima Goyal said, “By keeping rates high, RBI has imposed output sacrifice. They believe inflation will rise, but you know their predictions of inflation have always been overestimated.” The comments came a day before the central bank’s monetary policy committee’s (MPC) meeting. Nevertheless, it’s not the first and probably not the last time that the ruling government and the RBI have clashed over the idea of an ideal setting of interest rates. Normally, the central bank’s historic defiance in slashing the rates has attracted ire of the government of the day. Such instances were in plenty during the UPA rule, and the NDA government fares no better on this record. Relations between the Mint Road and North Block have often been frosty, with the former’s calls for lowering rates being the biggest point of difference. There have been many instances where the past RBI governors grumbled about the banking regulator’s autonomy being curtailed.
Be it the present government or the ones in the past, all have nudged the central bank into slashing the cost of borrowing. The ruling dispensation believes that lower borrowing costs for corporates and retail customers can help in fuelling growth. Even during Raghuram Rajan’s tenure at the RBI witnessed continuous tussle with the Modi government over the same issue. During the UPA regime, the Reserve Bank was put down in many instances by both Pranab Mukherjee and later P Chidambaram. Both these Finance Ministers criticised the central bank for being too hawkish on the interest rates and totally ignoring the growth concerns.
In his book titled – Who moved my interest rate – former RBI governor Duvvuri Subbarao wrote, “There was constant and decidedly unhelpful friction between the ministry of finance, under both Pranab Mukherjee and later Chidambaram, and the Reserve Bank on what the government saw as the Reserve Bank’s unduly hawkish stance on interest rates, totally unmindful of growth concerns.”
Even ahead of the second bi-monthly policy review of 2017-18, the finance ministry had scheduled a meeting with the interest rate-setting panel. Asserting its autonomy, the 6-member Monetary Policy Committee had then unanimously declined a meeting with finance ministry officials. The meeting did not take place. All the MPC members declined the request of the Finance Ministry for that meeting.