In his last monetary policy review today, Reserve Bank of India Governor, Raghuram Rajan decided against changing the key interest rates as the retail inflation continues to be above the comfort zone. “We are within the inflation band given to us by the Government and expect to be around 5 percent CPI inflation by March 2017, absent unforeseen eventualities”.
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FICCI President Harshavardhan Neotia said that the country’s economic situation is slowly improving and a policy rate cut would have translated into more investments.
Whoever takes over will also have to follow through on a campaign to clean-up banks’ high levels of bad debt, leaving bankers anxious over profit margins and reluctant to lower lending rates.
In the Third Bi-monthly Policy Statement for 2016-17, RBI Governor Raghuram Rajan said as regards the management of the imminent FCNR (B) redemptions, the central bank has been frontloading liquidity provision through open market operations and spot interventions/deliveries of forward purchases.
According to the agreement, the RBI will once in every six months publish a document to be called the Monetary Policy Report, explaining the sources of inflation and the forecasts of inflation for the period between next six to eighteen months.
The chamber emphasised the need for higher infusion of capital in the banks which remain under-capitalised for their full scale lending. “The prospects for inflation excluding food and fuel are more uncertain; if the current softness in crude prices proves to be transient and as the output gap continues to close, inflation excluding food and fuel may likely trend upwards and counterbalance the benefit of the expected easing of food inflation”, it added.
Though the policy has maintained status quo across all levels, the central bank’s statement throws some interesting facts on the economy.
Yes Bank CEO & MD Rana Kapoor said, “In the coming months, the disinflationary impact will be upheld by a favourable monsoon and structural policy reforms instituted by the government”. A basis point is one-hundredth of a percentage point. So rate cuts are unlikely to happen in a hurry even after Rajan leaves Mint Street.
“In earlier times the housing loan rates used to be 7% but the prevailing rates are above 9.25%”.
Rajan said it was too early to speculate whether the Goods and Services Tax Bill, which has been passed by both houses of Parliament, will have an inflationary impact, especially since the rate of tax is yet to be announced.
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In his interaction with the media on Tuesday, Rajan emphasised that very soon, the RBI governor’s role in determining interest rates would diminish.
