BackRBI adviser Arvind Virmani says it’s time to cut rates
'Every piece of new inflation data has reinforced my earlier conclusion that it is time to cut rates,' says Virmani
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Mumbai: The Reserve Bank of India (RBI) should cut benchmark interest rates, a member of its monetary policy advisory panel said after inflation held below the central bank’s target for a third straight month.
“Every piece of new inflation data has reinforced my earlier conclusion that it is time to cut rates," Arvind Virmani, a member of the RBI’s advisory panel on monetary policy, said in an e-mail interview on Tuesday.
“At some point, the sharp downtrend in inflation will force them to change their view, resulting in monetary loosening."
The consumer-price index rose 5% in December from a year earlier, official data showed on Monday.
That was less than the 5.35% gain forecast in a Bloomberg News survey, although faster than November’s 4.38% that was the least since the gauge was created in 2012.
Governor Raghuram Rajan, who aims to keep price gains within 6% by January 2016, has kept the key repurchase rate steady at 8% after three increases from September 2013 to January 2014. The inflation rate was as high as 11.2% in November 2013.
“The time for a rate cut arrived several months ago with the dramatic change in inflation trends," said Virmani, a former executive director at the International Monetary Fund (IMF).
“The relatively lower depreciation of the rupee against the dollar and the downtrend in inflation provide additional leeway."
Rajan, who left rates unchanged for a fifth straight meeting on 2 December, said that day a change in the monetary policy stance is likely in early 2015 should improvements in inflation and fiscal health continue.
The rupee has climbed 1.5% so far this year, the best performance in Asia, data compiled by Bloomberg show. The Indian currency weakened 2% against the US dollar in 2014, compared with a 6.3% loss for the Malaysian ringgit and a 5.6% drop in Taiwan’s dollar. Bloomberg
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