Just a day after central bank panel suggested adopting new consumer price index (CPI) for anchoring monetary policy, Economic Affairs Secretary Arvind Mayaram, expressed his reservations and underscored that it was premature to use the consumer price index as anchor since the data has imperfections.
Arvind Mayaram, outlined that CPI had a lot of imperfections and required lot of sophistication, which has not been achieved. Also, the Economic Affairs Secretary did not back this report because of likelihood of interest rates staying higher for longer period of time, something that government struggling to spur growth in a slowing economy, would not want to hear.
The report, suggested by the committee headed by RBI deputy governor Urjit Patel, would completely change the way monetary policy is framed in India and could become a contentious issue for the reason that it seems to suggest that the central bank should set the inflation target (and not the government) and that a committee of the central bank, not just the governor would take the call on monetary policy.
Further, Arvind highlighted that food inflation could not be purely curbed through monetary policy alone and that there are other structural issues that are required to be addressed if the economy has to control food inflation.
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