HomeBusinessIndia's Currency Dove urges slow hikes as rates approach neutrality

India’s Currency Dove urges slow hikes as rates approach neutrality

- Advertisement -
India's Currency Dove urges slow hikes as rates approach neutrality
India’s Currency Dove urges slow hikes as rates approach neutrality

A dove of Indian monetary policy signals. It is time to abandon the aggressive pace of increases in borrowing costs. It says the inflation-adjusted real interest rate is approaching neutral ground. As a result, it will reach a level where it can help control inflation without stifling economic growth.

“Indian real interest rates are not far from neutral,” he said. The Benchmark rate has risen to 4.9%, amid inflation that fell to 7% in May from 7.8% in the previous month.

- Advertisement -

The Reserve Bank of India’s rate panel increased its key rate by 90 basis points in two moves since May. It is among 60 others that have raised borrowing costs by half a percentage point or more in a single session to control inflation.

Goyal knows for her reluctance to make loans more expensive. As actions to cool demand can lead to a rise in the unemployment rate in an economy still struggling to recover. There is no general agreement on what the neutral rate should be for a particular country. A recent paper from the Reserve Bank of India suggested that it may have fallen after the pandemic.

Economists see the central bank raising rates at least twice. It is more before weighing a pause. The consumer price growth in India has remained above the RBI’s 6% upper tolerance limit since earlier this year.

Goyal is a professor at the Indira Gandhi Development Institute. Goyal says rates will rise. The pace will depend on inflation and growth outcomes and their impact on inflation forecasts.

Also, government measures to address supply-side inflation continue, he said. His colleague on the panel is Jayanth Rama Varma. He advocated adopting rate guidance from the Federal Reserve’s dot plot, along with the inflation forecast.

MPC minutes released last week showed members decided on a 50-basis point rate increase. But the rate differed on how inflation will evolve. Lt. Gov. Michael Patra said last week that MPC will likely lose its inflation mandate.

Here are a few more excerpts from the interview with Goyal:

“Losing the goal of the MPC is not important and is understandable given the circumstances. The important thing is to confirm the commitment to flexible inflation. Flexible inflation targets and reduce inflation with the least sacrifice of output.”

“My future votes will depend on the results, not on a preconceived ideological position.”

The chances of stagflation in India are “zero”. “Growth remains large and positive despite repeated shocks. A slight slowdown in growth is not stagflation. The economy has demonstrated intrinsic resilience, supported by its growing diversity.”

Source

Stay Tuned with Us:

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments