Standoff between RBI and Finance Ministry

Mumbai: RBI Governor Urjit Patel during a press conference announcing the Reserve Bank of India’s monetary policy at its headquarters in Mumbai on Wednesday. PTI Photo by Mitesh Bhuvad(PTI6_7_2017_000120A)

The Reserve Bank of India (RBI) and centre is fighting it out on the issue of lowering interest rates.

Straight after the Monetary Policy Committee (MPC) decision to keep the same rate, the Finance Ministry was adamant in his view that rates should be eased out.

The MPC members were earlier not interested in meeting with the finance ministry.

Yesterday, Reserve Bank of India left the repo rate unchanged at 6.25 per cent and the reverse repo rate at 6 per cent.

According to RBI, inflation will remain in the vicinity of 2 to 3.5 per cent for the first half of 2017-18.

The Ministry is not happy with the RBI modifying its monetary policy from “accommodative” to “neutral”.

Due to dipping inflation and growth in Gross Domestic Product (GDP), the Finance Ministry is of the opinion that there is an urgent requirement for further monetary policy easing.

The government want RBI to cut rates.

The six-member MPC headed by Patel was jointly formed by the RBI and government last year in order to evaluate interest rates and make the decisions pertaining to monetary policy much more transparent.

Interestingly, this is not the first time when the RBI and government have disagreed on the issue of interest rates reduction.


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