CEA wants deeper rate cut

New Delhi: Continuing with his tirade against the RBI,  the Economic Survey, written by chief economic adviser Arvind Subramanian, on Friday pulled up the Reserve Bank for its faulty inflation prediction and  consequent high interest rates. It said that there is scope for reducing RBI’s key policy rate by 25-75 basis  point. Recently Mr Subramanian has openly criticised RBI for incorrect inflation predication due to which it has not cut interest rates more aggressively, needed to uplift the economic growth. 

The Economic Survey Volume 2, presented in Parliament said that research indicates that consumer price inflation has undershot professional forecasts fairly consistently over the last 5 years or so, globally as well as in the advance economies. “In the Indian context, evidence seems to be pointing to same conclusion though the errors have been on both side over longer time horizon,” it said. 

“More recently such shifts seem to have been missed; for example, in the last 14 quarters, inflation has been overestimated by more than 100 basis points in six quarters  (three in 2014 and three in the most recent period) with an average error of 180 basis points (and that too for a very short-term forecast, just three months ahead),” said the survey about RBI inflation prediction against actual retail inflation. 

It said that India has entered a “new phase of relatively low, possibly very low, inflation.” It said that now international oil prices pose less risk to inflation than earlier.  “Technology has rendered India less susceptible to the vicissitudes of geo-economics and geo-politics,” it said. The survey said that the RBI's policy repo rate was still 25-75 basis above the neutral rate.