PMEAC member Ashima Goel calls for 25 basis points repo rate cut ahead of RBI Monetary Policy | EXCLUSIVE

By: | Published: February 7, 2019 11:28 AM

Ahead of new Governor Shaktikanta Das’ first RBI Monetary Policy announcement today, Prime Minister’s Economic Advisory Council member Ashima Goel called for a 25 basis points cut in repo rate, saying that the central bank has overestimated inflation target.

RBI MPC meeting: RBI likely to cut policy rates by 25 basis pointsAshima Goel also pointed out to the fact that production capacities are not yet nearing the limits, and that the production can be ramped up to meet any excess demand in the country, without stoking inflation.

Ahead of new Governor Shaktikanta Das’ first RBI Monetary Policy announcement today, Prime Minister’s Economic Advisory Council member Ashima Goel called for a 25 basis points cut in repo rate, saying that the central bank has overestimated inflation target.

RBI policy has been too tight, Ashima Goel said late evening yesterday as a panelist at the Shadow Monetary Policy Committee meet, organised by EGrow Foundation. She played down inflation concerns, saying that RBI’s inflation targeting has been overestimated, and that interest rates are high.

However, she also said that if RBI’s Monetary Policy Committee were to continue to remain conservative with policy rates even today, then an easing of stance to ‘neutral’ is a more likely outcome.

Much of Ashima Goel’s arguments in favour of a rate cut centred around inflation not being as a big risk as was being made out to be. She even said that core inflation, which continues to remain high, is also not such a big risk, adding that easing of crude oil prices will likely have a lagged effect on bringing down core inflation going ahead. Ashima Goel also pointed out to the fact that production capacities are not yet nearing the limits, and that the production can be ramped up to meet any excess demand in the country, without stoking inflation.

Also read: RBI Monetary Policy LIVE: Under Shaktikanta Das’ first policy review, rate cut on cards?

RBI is due to announce its sixth bi-monthly monetary policy for the current fiscal year 2018-19, where it is widely expected to change its stance to neutral from calibrated tightening to neutral, “The RBI is likely to alter its monetary policy stance from “calibrated tightening” to “neutral” with inflation being lower than its target for 5 consecutive months but will maintain status quo in the repo rate given the core inflation being sticky at 5% and likelihood of build-up in inflation in the coming months…,” CARE Ratings said in a recent report.

The policy has created interest since it’s the last of the current fiscal year, and also the first under Shaktikanta Das, who took charge in December 2018 following the sudden exit of Urjit Patel as Governor.

EGrow Shadow MPC voted for a rate cut by 5:1 votes, with a solitary vote for no rate cut. The chances of a rate cut, practically, were placed at 50% probability. The recommendation was to cut the rate by 25 basis points though there is scope for more substantive rate cut. The Shadow MPC also insisted that a rate cut should not be delayed since transmission is easier and faster during busy season The RBI, at the least, was expected to move towards neutral and soft policy stance.

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