India can move in direction of providing guidance on liquidity, says MPC’s Ashima Goyal
US Federal Reserve, which provides guidance on liquidity conditions, Ashima Goyal, a member of the Monetary Policy Committee said to Bhaskar Dutta in an interview.
Edited excerpts:
Is there a need for liquidity management to also be brought under the purview of the MPC? As the experience of the past six months shows us, liquidity conditions have been the driver of funding costs rather than the benchmark policy rate that the MPC votes on.
The US Fed Committee gives guidance on liquidity, and this is the case in many inflation targeting countries. India can also move in that direction as markets mature and deepen so shocks have less of an impact.
You have noted in the latest MPC minutes that the FY25 inflation projection of 4.5% gives room to cut rates. What would a potential timeline be for any reduction in rates?
While the FY25 inflation projection is 4.5% it is expected to rise towards the end of the year, in the majority of forecasts. Since we have had a series of supply shocks and geopolitical risks continue but growth remains quite robust, we have the space to watch for future shocks and see if they disrupt the ongoing trend disinflation.
You mention that steps are required to bring the weighted average call rate (WACR) closer to the repo rate. Does the banking system require a fresh approach to durable liquidity calculations, given the demands of 24/7 banking?
Steps to bring down the WACR to the repo rate would bring down short-term rates. Would this be acceptable to the MPC, given its current stance of
