It's unfair to expect central banks to anticipate future more accurately
The criticism that Reserve Bank of India (RBI) was behind the curve in hiking interest rate to tame rising inflation is unfair, former RBI Governor D Subbarao said on Wednesday and asserted that it is difficult for any central bank to anticipate the future more accurately.
image for illustrative purpose
New Delhi: The criticism that Reserve Bank of India (RBI) was behind the curve in hiking interest rate to tame rising inflation is unfair, former RBI Governor D Subbarao said on Wednesday and asserted that it is difficult for any central bank to anticipate the future more accurately.
Earlier this month, Monetary Policy Committee (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. It was also the first rate hike after August 2018, amid spiralling inflation. Subbarao further said given that monetary policy acts with a lag, this rate hike, by itself, is unlikely to bring inflation down in a hurry.
"I saw that the hurried action to tighten monetary conditions through an off-cycle MPC meeting raised several questions," he told PTI in an interview. Subbarao was responding to a question why RBI did not raise interest rate much earlier despite rising inflation. "Was the RBI sleeping at the wheel even as inflation was soaring? Did it go overboard in prioritizing growth over inflation? Won't the delayed action cost heavily in macroeconomic terms? Will this scrambling hurt RBI's credibility?
