Jayanth Varma, MPC's sole dissenter, on inflation, interest rate and MSP

Jayanth R. Varma, member, monetary policy committee.
Jayanth R. Varma, member, monetary policy committee.


  • India has sufficient monetary autonomy to base its monetary actions on the needs of the domestic economy, says MPC member Jayanth R. Varma.

Mumbai: Monetary Policy Committee (MPC) member Jayanth R. Varma says that he is not worried about the Reserve Bank of India announcing a rate cut before the US Federal Reserve. In an interview to Mint a day after the release of the MPC minutes, Varma said that he expects normalization of interest rates and that his views regarding a rate cut will remain unchanged even if there is the possibility of a hike in minimum support price (MSP) in future. He was the only MPC member to have voted for a rate cut in the February policy meeting. Edited excerpts


Since you were the first one to suggest a rate cut, do you worry about pre-empting a Fed rate cut?

I think that India has sufficient monetary autonomy to base its monetary actions on the needs of the domestic economy. Moreover, the statutory mandate of the MPC covers only inflation and growth. External sector considerations are completely outside the MPC's mandate.

Do you expect a series of rate cuts or just one?

I do expect a normalization of interest rates in the medium term as inflation converges to the target of 4%. The pace of this normalization depends on the evolution of inflation projections ahead.

Talks are on about a potential MSP hike. If that happens, do you see the possibility of a change in your views?

The current forecasts already incorporate a high level of food inflation that is being offset by moderation of core inflation. So reasonable increases in MSP would not be a matter of concern from a monetary policy perspective.

Is the current liquidity deficit a concern for policy decision making? Would you be okay with a deficit of around 1.5 trillion?

When the call rate breaches the upper end of the corridor, that represents serious frictions (if not failure) in the process of monetary policy transmission from the policy rate to the overnight rate. Like other transmission frictions, this also increases the difficulty of monetary policy making.

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