RBI not ‘behind the curve’ in hiking rate; never wise to overreact to shocks: Ashima Goyal
The Hindu
Ms. Goyal was responding to a question on why the RBI did not raise interest rate much earlier despite rising inflation
The Reserve Bank of India is not “behind the curve” in hiking interest rate to tackle rising inflation, Monetary Policy Committee (MPC) member Ashima Goyal said on Sunday and asserted that it is never wise to overreact to shocks when the economic recovery is shaky post the coronavirus pandemic.
While acknowledging that India is “especially vulnerable” to the combination of food and crude oil inflation unleashed by the Russia-Ukraine war, Ms. Goyal, also an eminent economist, said rate hikes should be aligned with the economic recovery.
Her comments come days after the MPC, the central bank's rate-setting panel, surprised the markets with a 40 basis points hike in repo rate in an off-cycle policy meeting this month. It was also the first rate hike after August 2018, amid spiralling inflation.
“RBI started rebalancing liquidity last year, while the U.S. Federal Reserve is yet to start contracting its balance sheet, with inflation far in excess of its target,” she told PTI in an interview.
While noting that Inflation has just exceeded RBI’s tolerance band due to the protracted Ukraine-Russia war, Ms. Goyal said Indian demand and wages are ‘soft’.
“In the U.S., there was over-stimulus due to large government spending. Labour markets are tight. The Fed may be behind the curve, the RBI is not. The Indian inflation trajectory differs from that of the U.S.,” she stressed.
Ms. Goyal was responding to a question on why the RBI did not raise interest rate much earlier despite rising inflation and whether the central bank will fall a little behind the curve compared to the U.S. Fed in this regard.
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