Advisors in the finance ministry have lauded the tenure of Reserve Bank of India (RBI) Governor Raghuram Rajan as one during which India regained credibility on the monetary policy front.
The Mid-Year Economic Analysis 2014-15, tabled in the Lok Sabha on Friday, implicitly sought Rajan cut the policy rate, as real interest rates were close to periods when the economy was overheating.
"For a long time, the Indian economy has been drifting without a credible monetary anchor. Since late 2013, however, this has been laudably reversed," said the analysis, by Chief Economic Advisor Arvind Subramanian.
It added for about six years --- from the third quarter of 2007 to the third quarter of 2013 ---, India had lost credibility in terms of monetary policy, reflected in the fact that real policy interest rates were consistently negative at a time when inflation was persistently in double digits. For the first time in decades, the analysis said, inflation in India exceeded that of comparable countries. "That has been reversed since the end of 2013, with real interest rates climbing back into positive territory.
As of today, these stand just above two per cent (on a three-month forward looking basis)."
