Calling for a rate cut, Prime Minister Narendra Modi’s Economic Advisory Council member Surjit Bhalla on Tuesday said the Reserve Bank of India’s Monetary Policy Committee (MPC) needs to work out its inflation model. According to him, there was an expectation that the MPC can’t do anything given the fact that fiscal deficit, oil prices and inflation are going up. “I do not subscribe to any of those because what we have to look at, as an economist, is the real interest rates,” Bhalla said in an interview with BTVi, asking how can the country get investments with high interest rates and noting the real determinant of investments is the cost of capital. The Reserve Bank of India’s MPC meeting commenced on Tuesday.
According to economic observers, the central bank was expected to keep its key interest rate unchanged at its penultimate monetary policy review of the fiscal on Wednesday owing to higher inflation in October and a surge in oil prices, even as the reversal in the decline of GDP growth during the second quarter has eased pressure on the central bank to cut rates.
Bhalla said MPC has been missing the inflation forecast and it needs to work out its inflation model. “If they think the inflation over the next year will be 5 per cent then they should do nothing. Their forecasts of inflation has been terribly wrong…” “The inflation rate between April to October was 2.7 per cent, which is lowest ever for this time period… the MPC can cook up any numbers as it feels like. Indeed, it has been cooking up the inflation numbers… I think MPC needs to work out its inflation model.”