This rate cut a reactive move; central banks should be forward-looking: Mythili Bhusnurmath

Mythili Bhusnurmath, Consulting Editor, ET Now, shares her views on the latest RBI rate cut. Excerpts:

ET Now: Your initial sense on this 25-bps rate cut?

Mythili Bhusnurmath: It is no surprise. The only unfortunate part is that this makes the RBI appear reactive rather than proactive. Central banks should actually be forward-looking.

Let us hear what the statement has. Ideally the statement should give us little bit more guidance.

ET Now: Governor Rajan seems eluctant to move away from being an inflation warrior. What is your take on that?

Mythili Bhusnurmath: Let's accept that every central banker starts off as an inflation hawk, with price stability the primary objective. But having said that, central bankers have made it a point to have a 360-degree look after the global financial crisis.

Nowadays, they don't merely look at price stability. They also keep an eye on growth, employment, bank supervision, and a whole host of other things. Rajan's problem at the moment is that the monetary policy framework agreement does not give him any cushion at all, because it insists that the RBI is solely responsible for price stability.

Actually, the monetary policy framework agreement is something that should never have been implemented. Inflation targeting is something that the world has tried, tested and now junked. It is really a mistake that India very often copies the west after the west has tried a thing and junked. Capital account convertibility is a another fine example of that.

The monetary policy framework agreement is why Rajan is compelled to play safe. This agreement has both pluses and minuses, but at this particular juncture it has perhaps more minuses than pluses.