The Government sees no bias in the RBI-led monetary policy committee towards raising interest rates, and the decisions should be guided by hard data, Economic Affairs Secretary Subhash Chandra Garg has said. The minutes of the last MPC meeting in April “do no reflect any bias for increase” in interest rates, he told PTI here.
When the policy that kept interest rates unchanged was announced, the media said it is a dovish policy, he noted. “What has come now is details of what members said, and 1 or 2 members seem to be saying if situation would turn it in this way (raising interest rates), but then a lot of others did not say the same.”
At the April 4-5 policy meeting, Deputy Governor Viral Acharya cited revival in investment activity and an improvement in capacity utilisation for his switch from a neutral stance to shift “decisively to vote for a beginning of ‘withdrawal of accommodation’ in the next monetary policy meeting in June.”
A majority of the six-member panel flagged upside risks to inflation as it kept the benchmark repurchase rate unchanged at 6 per cent. Five of the six members voted for status quo on interest rates, while one, Michael Patra, who is an executive director heading the research department, sought an increase.
“We should go by the real numbers. Have you seen disproportionate rise in inflation numbers? Have you seen extraordinary growth in output, which has reduced the output gap substantially? No,” Garg said.
Only fundamentals should dictate such decisions, he said. “If there is any real situation where inflation seems to overshoot, RBI does have a statutory mandate to keep the inflation around 4 per cent. So, they would take the most appropriate steps for that.” He went on to ask if such a situation existed, and answered by saying ‘no’. “When you people say that something is going to happen, it should be based on fundamentals,” he said.
Retail inflation in March slipped to a five-month low of 4.27 per cent on account of a decline in food prices. The RBI has revised downwards the forecast for retail inflation to 4.7-5.1 per cent for April-September and 4.4 per cent for October-March.
Cash situation ‘comfortable’
Currencies in 500, 200 and 100 denominations are a comfortable mode for transactions and the printing of Rs 500 notes have been ramped-up to about Rs 3,000 crore everyday to take care of extra demand, Garg said. He said the cash situation in the country is “quite comfortable” and extra demand is being fully met.
The Secretary said he had reviewed the cash situation in the country last week and 85 per cent of the ATMs was functional. “Overall in the country, I think its (cash situation) quite comfortable. There is enough cash which is being supplied and there is extra demand which is being fully met. I don’t think there is any cash related crisis or problem at this point of time,” Garg said.
There are about Rs 7 lakh crore of Rs 2,000 notes in circulation, which is more than adequate and and so no new Rs 2,000 notes are being issued.
“500 and 200 and 100 rupee notes are people’s medium of transaction. That’s what people use, people don’t find Rs 2,000 rupee note as a very comfortable medium for making transaction. 500 rupee notes is very adequately supplied. We have ramped up production to the level that it is about Rs 2,500-3000 crore a day. So, that is much more than any demand. People’s need for transactions are being taken care of by these,” he said.
The Reserve Bank has been strengthening the security features of currency notes to ensure that they are not duplicated. “In the last 2.5 years, there have been very few instances, almost non-existent instances, of high quality fake notes being reported in the country. But still RBI keeps on reviewing, finding out, adding new features,” Garg said.