Mythili Bhusnurmath: Do you share RBI’s worries on the institutional framework? Do you share the RBI’s worries as far as inflation is concerned or do you think there has been a growth inflation trade off that every central banker kind wrestles with? Now the focus should shift despite the GDP numbers. Inflation is less of a worry or should be a less of a worry particularly with food inflation largely outside the RBI’s domains and the focus should be more on growth.
Mythili Bhusnurmath: The government has yet to come out with its composition of the MPC. Now will the composition of the MPC make a difference whatsoever to RBI’s inflation targeting framework or will it not make a difference? When are we going to get the final word on that? Do you have any idea at all?
Sajjid Z Chinoy: I do not think it is meant to subvert the framework. I think it is meant to complement the framework and all credit goes to the government here that RBI now has a legal mandate. The RBI act has been amended in the last budget where they formed the inflation target and I think the MPC is just meant to bring collective thought process to it. I understand the RBI wants to be accommodative here from the language and the guidance they have used but they need the data to give them the leeway to cut and so I think if we find that a normal monsoon will suppress food inflation and later in the year we either meet 5 per cent target or undershoot it. It is just that at this point, given where food prices have been in the last few months and the way oil price has accelerated, some of the inflation risks have risen and I think the RBI is simply reflecting those ground realities.
Mythili Bhusnurmath: I think repeatedly twice or thrice in the statement at least he made a reference to the risks emanating out of the inflation target. However, the January 2017 target is left unchanged. What do you make of the same?
Sajjid Z Chinoy: No, I think he is just reflecting the ground reality. The fact is over the last two months oil prices have gone up by 25 per cent, oil is at $50 a barrel, the RBI’s forecast for oil in the last policy review over the course of the year was $40. So you are 25 per cent above that. Food prices have surprised on the upside and the fact is the April number of 5.4 per cent was higher than any of us thought or the RBI thought. So I think RBI is just marking to market its forecast and says that if oil stays here, food prices stay here, this does create upside risks to inflation. Now their modal forecast has not changed because I think they are hoping that an above normal monsoon will exert some disinflationary forces on food inflation later. So I think it should be no surprise, I think most market participants over the last month have changed the risk bias of their own inflation forecasts and today the RBI simply did the same thing.
Download The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
Download The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price