CEA Arvind Subramanian Disagrees With RBI, 
 Says Low Inflation And Slow Growth Warranted A Rate Cut

Arvind Subramanian

Arvind Subramanian, chief economic adviser (CEA) in the Finance Ministry, said on Wednesday that he does not agrees with the Reserve Bank of India’s (RBI) status quo on interest rates, calling for a “substantial monetary policy easing” in view of softening inflation and slowing economic growth.

“In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing,” Subramanian said in a note.

According to the chief economic advisor’s alternative macroeconomic view, not only headline inflation, but also core inflation has declined sharply.

“Inflation forecast errors have been large and systematically one sided in overstating inflation. In this (alternative) view, the inflation outlook has been rendered benign by an appreciating exchange rate, a good monsoon and a capping of oil prices by structural shifts,” he said.

Explaining his point, Subramanian cited several economic indicators including real gross value added (GVA), industrial output, capital formation and capacity utilisation in the industry to show that economic growth has decelerated.

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