Raghuram Rajan is not an item number; there can’t be something new every 15 days

ARTS RAJANIf you are the kind who watches Hindi film trailers regularly, you would know that item numbers hit television screens regularly; once in about every two weeks is my guess. Such songs, normally do not have any link with the overall story of the movie and are typically included just to get the audience to the theatres, once the movie releases.
Given this, they have a very small shelf life. Of course there are songs like choli ke peeche kya hai which fall into this category and have survived the test of time. But they are exceptions that prove the rule.
The mainstream media also needs its shares of item numbers to keep the audience interested. And given the state of our country, there is no dearth of such events. It could mean non-stop coverage of a child who has fallen into a bore-well or a sting operation that merely states the obvious.
One part of the media which does not get enough item numbers is the business media. And typically they look forward to the days on which the Reserve Bank of India (RBI) presents the monetary policy. Today was one such day and business media was waiting for it with bated breath.
But the item number turned out to be a
bhajan when the RBI governor Raghuram Rajan decided not cut the repo rate in the Sixth Bi-Monthly Monetary Policy Statement, for 2014-2015. Repo rate is the rate at which the RBI lends to banks and is currently at 7.75%.
Rajan had cut the repo rate on January 15, 2015, by 25 basis points. This was an inter-meeting cut with no monetary policy announcement being scheduled on that day. This cut had left the media gasping for more cuts.
Rajan in a press conference after the policy was announced today rubbed salt into media’s wounds(i.e. their disappointment at the repo rate not being cut) by saying that “monetary policy is a long term process. Don’t hold me for something new every 15 days.”
A rate cut would made the day easier for the business media. The stock market would have rallied. The experts would have explained why the stock market has rallied. Still other experts would have told us which are the stocks to buy now. The economists could be got in to explain, why the RBI cut the repo rate. They could also speculate about whether the RBI would cut the repo rate by 25 basis points or 50 basis points on April 7, 2015, the day, the next monetary policy statement is scheduled to be announced. And the television anchors could have brought out their million dollar smiles. All in all everyone would have had a good time.
But in the words of Sahir Ludhianvi made famous by Amitabh Bachchan “
magar ye hona saka”.
Nevertheless, if people had chosen to read the last monetary policy statement carefully enough, they would have known that the chances of the RBI cutting the repo rate again on February 3, were next to nothing.
The statement had clearly said: “Key to further easing are data that confirm continuing disinflationary pressures.” This means that if inflation keeps falling or remains stable, the RBI will cut the repo rate more in the days to come. The trouble was that between January 15 and today no new inflation data was released. That will happen only next week.
In the same statement the RBI had further said that “also critical would be sustained high quality fiscal consolidation.” This financial year is more or less over. The only way the RBI can figure out how the government is planning to manage its fiscal deficit for the next financial year is by studying the annual budget once it is out on February 28, later this month. The fiscal deficit is the difference between what a government earns and what it spends.
Given this, any further rate cuts would mean waiting for new inflation data to come out as well as waiting for the government to present its budget.
As the RBI said in the monetary policy statement released today: “The Reserve Bank also indicated that 
“key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation…”. Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance.”
Over and above this the RBI also needs to take a look at a few other data points that are scheduled to be released. Sometime late last week, the ministry of statistics and programme implementation released a new method of calculating the GDP. This changed the base year for calculating the GDP from 2004-2005 to 2011-2012. The structure of the economy keeps changing. Hence, the GDP calculations also need to keep pace with this change. Over and above that the data that the government has access to keeps improving over the years, and this also needs to be incorporated in the way the GDP is calculated.
This new GDP data essentially suggests that the Indian economy grew by 4.9% during 2012-13, and 6.6% during 2013-14. The earlier calculations had suggested that the Indian economy grew by 4.5% in 2012-2013 and 4.7% in 2013-2014.
On February 9, later this month the government will release the expected GDP growth for 2014-2015, using the new method unveiled late last week. The RBI will have to take this into account while deciding what to do with the repo rate in the days to come.
Along with the new GDP, the RBI also will have to monitor the revision in the way the consumer price index is calculated. As the central bank said in its statement: “As regards the path of inflation in 2015-16, the Reserve Bank will keenly monitor the revision in the CPI, which will rebase the index to 2012 and incorporate a more representative consumption basket along with methodological improvements.”
Given these reasons, the next action from the RBI on the repo rate front, will happen only after the government has presented its annual budget irrespective of the business media continuing to make a song and dance about it.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

This column originally appeared on www.firstpost.com on February 3, 2015