RBI Governor Shaktikanta Das, Deputy Viral Acharya Were Not in Sync in Last Three Policy Meets

Reserve Bank of India (RBI) deputy governor Viral Acharya has reportedly resigned six months before the scheduled end of his term. A Business Standard report said that Acharya will return to New York University's Stern School of Business in August, instead of February 2020, as CV Starr Professor of Economics. Acharya’s resignation was unexpected, but if past events are any indicator, there was difference of opinion between him and RBI governor Shaktikanta Das. Recordings from the monetary policy committee (MPC) meetings for the last three policy reviews show that Acharya and Shaktikanta Das differed on key issues of growth, inflation and fiscal deficit. Take a look:

February 2019 MPC review meeting

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) at its rate review held during 5-7 February had cut rates by 25 basis points.

Interestingly, RBI governor Shaktikanta Das and deputy governor Viral Acharya differed on the issue of cutting repo rate in February. This was the first time that the central bank head and his deputy in-charge of monetary policy were on either side of a decision on policy rates since the monetary policy committee (MPC) was formed.

While governor Das wanted a 25 basis points reduction, Acharya, who headed the monetary policy department of the RBI, opted for status quo. The rate cut was decided in a 4:2 majority decision by the MPC.

The recordings show that Acharya suggested that the MPC should wait till the next policy for a rate cut. He, however, voted for a change in the policy stance to neutral.

April 2019 MPC review meeting

RBI’s key policy rate was reduced by 25 basis points to 6% in the April review. The central bank released the minutes of the 2-4 April policy review meeting on 18 April, which showed the MPC voted 4-2 for a 25 basis points rate cut. Members Viral Acharya and ChetanGhate had voted against a policy rate reduction.

Shaktikanta Das stressed on the need to support economic growth and said inflation was likely to be lower than projected, as he voted for a rate cut. On the other hand, Acharya flagged uncertainties on inflation and voted for a pause. “On balance, therefore, notwithstanding signs of weakness in growth evinced in high frequency economic indicators, I am inclined to wait for some more time for incoming data to resolve several important uncertainties that will shape the Indian economy in the coming one or two years,” he said.

Acharya also said the 6.25% policy repo rate was just “right” for achieving the headline inflation target of 4% on a durable basis in the medium term.

June 2019 MPC review meeting

The key policy rate was reduced by 25 basis points again in the June policy review. The minutes from the MPC meeting published last week showed that, again, Shaktikanta Das and Viral Acharya had contrasting assessments of fiscal deficit situation in the county. Though the six members of the MPC voted unanimously to cut rates by 25 basis points, fiscal deficit was a point of contention.

“There is an important upside risk to RBI’s projected inflation trajectory that I wish to highlight in particular – that of fiscal slippage,” said Acharya in the minutes of the MPC meeting. “Correct economic measurement of the fiscal slippage should factor in the implications of a rising PSBR (Public Sector Borrowing Requirement) rather than rely solely on the consolidated fiscal deficit figures.”

Governor Das said that the government had maintained its fiscal promise and argued that it would be a mistake to club the borrowings of state-run enterprises into that of the sovereign as they have their own revenue stream from which they could pay out.