Deputy Governor Viral Acharya: The RBI has been injecting system-wide liquidity through open market operations (OMOs). Presently, the system liquidity position is in surplus. So there is liquidity for those able to get it from lenders.
Since you took charge, you have held a lot of meetings with various stakeholders. What were the key takeaways?
Das: In my interactions with banks and NBFCs, a number of suggestions were made. Each of these suggestions is being examined and, wherever appropriate, we are taking action, some of which is reflected in Part B of the statement.
How concerned is the MPC about the inflationary impact of the policies announced in Budget and fiscal slippage?
Das: The MPC has given its projections with regard to inflation, and, in the next 12 months, it is expected that it end at 3.9 per cent in Q3 next year. So, the impact of Budget proposals and various other developments have been factored into our projections. The possibility of fiscal slippage has been discussed. The government has said 3.4 per cent this year and next year. That has also been factored into our inflation projections.
Did the MPC consider a cut of 50 basis points and is there room for more cuts?
Das: The shift in stance from calibrated tightening to neutral also provides flexibility and room to address the challenges to sustained growth of the economy in the coming months as long as inflation outlook remains benign. The decisions of MPC in this regard will be data driven and in consonance with monetary policy to maintain price stability while keeping in mind the objective of growth.
Why is the RBI constantly getting the inflation projection wrong?
Acharya: First, headline inflation over the past year has averaged almost exactly at 4 per cent. There have been issues with the specific level of projections and there have been errors in core inflation which have led to higher inflation. You can’t take one aspect and say that the edifice is not working.
Second, food is always the volatile part of all economies, and the errors are larger where it is the major component of the basket. The relative errors that the central bank here makes are not that out of line with what happens in the world. We should take this criticism seriously and we are quite introspective about these laments.
What are you doing about it?
Acharya: Over the last year, we have formed specific sub-groups of our modelling teams that focus on specific food items. They try and get a sense through our regional food offices and try to get an earlier sense of what the Central Statistics Office number might look like. If you look at large surprises, they have been related to demonetisation and, of late, they seem to be related to a supply glut. Just from a modelling sense, you get the supply numbers only once a year. So to use that to make real-time projections of these food items is not easy. Therefore, we have started a little bit of grassroots work and we are also talking to agri-specialists and economists. Hopefully, we will get better with time.
The government is asking for previous year’s surplus along with interim dividend. What is your take on breaching fiscal deficit and then taking dividend from RBI?
Das: Payment of dividend or surplus from the RBI is part of the RBI Act. It is a legal provision. We are not doing anything beyond the provision. How the government uses the proceeds of this surplus or dividend is the government’s decision. There are several issues under discussion between the government and the Reserve Bank. Any decision of RBI is driven by certain principles and accounting norms.
How concerned are you about monetary transmission .How will you address it?
Das: Whenever there is a rate cut, we expect monetary transmission to take place. But we have to keep in mind that fixing of rates is a function of banks. We will have a meeting with bank CEOs and discuss issues, including monetary transmission.
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