GET Stock QuotesNews18 APP
News18 English
Powered by cricketnext logo
»
1-min read

PM's Advisor Says RBI Over-estimates Inflation, Economists Feel Otherwise

“Their view of the economy doesn’t seem to be correct... (By keeping rates high) they have imposed a high output sacrifice,” said Ashima Goyal, a member of Prime Minister’s Economic Advisory Council.

Rounak Kumar Gunjan | News18.com

Updated:December 5, 2017, 1:30 PM IST
facebookTwittergoogleskypewhatsapp
PM's Advisor Says RBI Over-estimates Inflation, Economists Feel Otherwise
File photo of Reserve Bank of India logo.
New Delhi: Ahead of the Reserve Bank of India’s (RBI) monetary policy committee (MPC) meeting on December 6, members of Prime Minister’s Economic Council told Bloomberg that the central bank overestimates inflation and should order a cut in interest rates. Experts, however, do not agree.

“Their view of the economy doesn’t seem to be correct... (By keeping rates high) they have imposed a high output sacrifice,” Ashima Goyal, a member of Prime Minister’s Economic Advisory Council told Bloomberg.

"They believe inflation will rise but you know they always overestimate. The RBI has room to reduce rates by 100 basis points,” she said.

However, former adviser to the Planning Commission and the first Chief Statistician of India, Pronab Sen is not in agreement with the statement.

“Interest rates are a tool to correct inflation, it doesn’t cause inflation. However, if there is an inflationary trend, interest rates cut down on demand. If there is insufficient demand in the economy, then the Central Bank will revive demand by cutting interest rate,” said Sen.

The 80-year-old further said that the central bank while setting the rate, doesn’t look at just next month’s inflation, rather a four to nine-month period. The RBI, therefore, makes a projection that is going to be nine to twelve months ahead and sets interest rates accordingly.

“When we are talking of forecasts over-estimating inflation, RBI can turn around and say that actual inflation is lower than our forecast because it was based on ‘business-as-usual’ basis. What you are finally viewing as inflation is a result of the inflationary policy that we took. The statement is not comparing likes to likes,” said Sen.

A change in interest rates is closely watched by banks and markets in general.

“They have been working through the aggregate demand channel to reduce inflation but aggregate demand channel is weak in India,” said Ashima Goyal, who earlier served as a member of the RBI’s technical advisory committee on monetary policy.

Decreasing aggregate demand “decreases output, and has the first effect on output and little effect on inflation”.

Chief policy advisor at multinational consultancy Ernst and Young, DK Shrivastav also agrees with Sen.

“RBI bases its forecasts on the overall CPI inflation rather than core inflation. Food and fuel prices are to be considered in the latter. The statement is not entirely justified,” said Shrivastav.
Read full article
Next Story
facebookTwittergoogleskypewhatsapp
Most Active
Company Price Change %Gain
Reliance 915.60 -0.55 -0.06
HDFC 1,710.80 +0.85 +0.05
SBI 318.45 +0.05 +0.02
Infosys 1,010.50 +5.20 +0.52
Maruti Suzuki 9,131.35 -2.45 -0.03
Company Price Change %Gain
Bajaj Finance 1,698.65 -8.50 -0.50
Petronet LNG 251.15 +0.95 +0.38
Fortis Health 128.10 -10.80 -7.78
Bharat Fin 993.05 -10.00 -1.00
Tata Motors 405.70 -4.50 -1.10
Top Gainers
Company Price Change %Gain
Dr Reddys Labs 2,256.35 +63.45 +2.89
Adani Ports 402.50 +10.75 +2.74
ONGC 183.30 +4.40 +2.46
GAIL 491.90 +10.70 +2.22
Lupin 846.80 +7.65 +0.91
Company Price Change %Gain
Dr Reddys Labs 2,255.60 +62.10 +2.83
Adani Ports 401.60 +9.65 +2.46
ONGC 182.95 +4.05 +2.26
Lupin 845.00 +7.30 +0.87
Infosys 1,011.10 +7.60 +0.76
Top Losers
Company Price Change %Gain
HPCL 414.95 -17.60 -4.07
Bharti Infratel 355.40 -12.65 -3.44
Tata Power 90.55 -3.00 -3.21
BPCL 498.95 -15.25 -2.97
Coal India 263.40 -6.45 -2.39
Company Price Change %Gain
Coal India 263.25 -6.60 -2.45
Cipla 590.75 -13.10 -2.17
Hero Motocorp 3,444.95 -69.60 -1.98
Bharti Airtel 524.75 -7.75 -1.46
TCS 2,614.15 -41.85 -1.58

Live TV

File is:/article-scroll-new.php