We are actually raising the real repo rate: MPC's Jayanth Varma
repo rate, the Monetary Policy Committee is not keeping rates unchanged, but actually raising the real repo rate, which is adjusted for inflation, Jayanth Varma, an external member of the rate-setting panel. Varma, who has expressed concerns about growth sacrifice due to restrictive monetary policy, voted for a 25-basis-point rate cut in the MPC's June policy review. Edited excerpts from the interview with Bhaskar Dutta:
The RBI has been placing emphasis on the arduous and slow manner in which inflation is declining to the 4% target. Is the emphasis on reaching 4% and thus keeping rates unchanged a matter of ensuring the credibility of the monetary authority?
First of all I think it is important to keep a sharp focus on the real policy rate and not on the nominal repo rate. It is a mistake to think that we are keeping rates unchanged by maintaining the same nominal repo rate; the fact is that, we are actually increasing the real repo rate. Second, there is no reason to worry about credibility at this point of time. Inflation expectations are well anchored, and the inflation targeting regime is working quite well. I do not find any merit in the proposition that an excessively high interest rate is needed to establish the credibility of monetary policy.
If interest rates are kept where they are, do you think we will have missed the bus as far as the potential growth rate of 8% is concerned? You have spoken about an «unacceptably high growth sacrifice» due to restrictive policy...
Missed the bus is too strong a
