RBI had released its inflation expectation survey last week – before the monetary policy meeting of the newly constituted Monetary Policy Committee of the Reserve Bank of India. The Committee – six of them – met and decided unanimously to cut the policy rate by 25 basis points to 6.25%. I was surprised. I had expected them to do nothing. The Committee gave many arguments in its press statement, against its own decision. More on that later.
The observation that inflation expectations in India had gone up sharply caught my attention. I checked the survey of household inflation expectations. 30% of the respondents are housewives. But, the expectation that the inflation rate would be 11% next year appears to be uniform. It is somewhat puzzling. But, it is there. My good friend Praveen Chakravarty has been quite sceptical of this survey and its results. Perhaps, he has a point. Perhaps, not. May be, the survey responses were dictated by the big jumps in prices in the three months of May to July.
Even more puzzling has been the response of the RBI team at the press conference. First, the press conference seemed too short. Second, Michael Patra’s response on the real rate of interest was rather curious. The logic escapes me, given the Indian context.
Third, Ira Dugal posed a good question to which the Governor responded. But, the response appeared less than persuasive. You can judge for yourself.