RBI-Centre tussle: Is govt trying to guide interest rates?

MINT Road observers were taken aback by the sudden calls from top two Union ministers to cut the interest rates, days ahead of the December 6 policy meeting and within a month of the governor Shaktikanta Das' six-year term ending.

- BENN KOCHUVEEDAN @MUMBAI

Are we going back to the days of bitter public spats that government and the Reserve Bank of India (RBI) had when Subbarao was at the helm which got lingered into the terms of Raghuram Rajan and Urjit Patel, though not on rates per se but on larger policy issues?

What has suddenly changed the honeymoon-days-like cordial relationship between the RBI and government in the past six years? Das completes his near-record six-year term on December 12—the longest tenure since Benegal Rama Rau's, who helmed the central bank for 7.5 years from 1949-57—and all indications signal that he's going to keep the job for a year or two at least.

First it was the chief economic advisor V Anantha Nageswaran who made a wild-card demand in the last economic survey—skin food items off the retail inflation basket—food items constitute as much as 45.9% of the weighting in retail inflation basket and their prices cannot be controlled by monetary policy as they are supply-driven.

The issue got a silent response from the RBI at the next policy presser: RBI believes that food inflation is central to its prices control objectives.

On November 14, just ahead of Das' speech at an industry event, commerce minister Piyush Goyal dropped the rate bomb—first time in six years: "I certainly believe the central bank should cut interest rates. Growth needs further impetus. It's absolutely a flawed theory to consider food inflation while deciding interest rates."