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Context:
The Lack of an honest debate on inflation and monetary policy, is hurting India’s growth
Introduction:
- The entire sustained decline in inflation from 5+ levels has been missed by the RBI.
- Last 12 months average inflation of 3.4 per cent with the maximum of 5+ observed in August 2016.
- Deputy Governor in charge of monetary policy, Viral Acharya opines: “Higher real rates are justified in the meantime as absent efficient transmission, attempts to address symptoms of balance-sheet problems with aggressive monetary easing get wasted and can even backfire by misallocating investments, fueling asset price inflation, creating false hopes of a growth boost, and relaxing the pedal on deeper structural reforms.
- At the release of an edited book by Rakesh Mohan, one of India’s leading economists and thinkers, there ensued a panel discussion on what policies were needed to get India growing again.
- The eminent panel fully recognised that the economy, particularly the manufacturing sector, was not in good condition
- The panel discussed the importance of sun-spots affecting jobs.
Key points:
- The median real policy rate in emerging economies is 0.8 per cent.
- Many economies (including Bangladesh and Vietnam) have negative real policy rates.
- Excluding Brazil and Russia, India has the highest real policy rate in the world, and the Russian rate is only 50 bp higher.
