Why RBI maintained the status quo, did not change its stance? R Gandhi explains

Analysing the monetary policy, R Gandhi, Former RBI Deputy Governor, says that while the policy is conservative, in the long run, inflation will have to be very manageable at that near the target level of around 4%, for India to have a stable growth platform. RBI’s clear inflation hawk stance says that by no means will we give up our fight against inflation. And until inflation comes under check completely, the durability of growth cannot be achieved or aimed at. Do you think that was very clearly reflected in the RBI Governor’s speech today?R Gandhi: Exactly, what you said is right, because inflation is consistently coming down and that will be the policy objective and to bring it closer to 4. When inflation down for two months and goes up in the third month, that means that the policymakers have to worry about getting a steady decline towards the target rate. That is why complacency is not warranted. The Governor has very clearly mentioned it, and the MPC statement also focuses on that aspect. Yes, it is conservatism, but in the long run, to give a stable growth platform, inflation will have to be very manageable at that near the target level.

Let us talk about the other part of the speech which alluded to clear signs of picking up a private side of the capex. Up till now, that has been front-loaded, the capex in our country, by the PSUs or the government side. But it appears that various sections of the policymakers are nudging the private sector now. Are you seeing much more concrete signs yourself?R Gandhi: Before answering that, two follow-up comments on the earlier one I wanted to mention. One is about why the stance has not been changed even though some expectations were that the stance could be changed, that is a quick reaction to that comment.

Possibly, the MPC and the central bank kept in view that their inflation projection for the current quarter and next quarter is higher than what they had earlier forecast. And that is possibly why the stance change has not happened. The second comment was related to the Bank of Japan. BoJ does not have a dovish stance now. They increased the rate and any further rate hike may not come quickly. Now to your specific question about private investment getting nudged by both the government and the Reserve Bank. Yes, certainly. In the last several quarters we have seen private investment picking up and credit pickup also being quite robust. That way, the Budget indicated support for private investment. The government continues its infrastructure-related capital expenditure. Having consistently put in money on the infrastructure for several years now, that benefit will accrue to the economy.