‘RBI not behind the curve in hiking rate’

NEW DELHI: The Reserve Bank of India is not “behind the curve” in hiking interest rate to tackle rising inflation, Monetary Policy Committee (MPC) member Ashima Goyal said on Sunday and asserted that it is never wise to overreact to shocks when the economic recovery is shaky post the Coronavirus pandemic.

While acknowledging that India is “especially vulnerable” to the combination of food and crude oil inflation unleashed by the Russiaukraine war, Goyal, also an eminent economist, said rate hikes should be aligned with the economic recovery.

Her comments come days after the 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 this month. It was also the first rate hike after August 2018, amid spiralling inflation.

“RBI started rebalancing liquidity last year, while the US Federal Reserve is yet to start contracting its balance sheet, with inflation far in excess of its target,” she said.

While noting that Inflation has just exceeded RBI’S tolerance band due to the protracted Ukraine-russia war, Goyal said Indian demand and wages are ‘soft’.

“In the US, there was overstimulus due to large government spending. Labour markets are tight. The Fed may be behind the curve, the RBI is not. The Indian inflation trajectory differs from that of the US,” she stressed.

Goyal was responding to a question on why RBI did not raise interest rate much earlier despite rising inflation and whether the central bank will fall a little behind the curve compared to the US Fed in this regard.