Rajan has lowered rates by 150 bps since January last year to their lowest in more than five years, but economists doubt whether the current easing cycle has much further to run, and expect the next RBI governor to provide at most another 25 bps cut by the end of the year. Some banks have taken more steps than we required them to take. “You can interpret them any which ways you want”, Rajan said at an interaction with select news agencies here this evening.
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In the customary RBI Monetary Review Policy till Tuesday, the central bank kept key rates – repo and reverses repo rates – unchanged as inflation hit near 2-year high but said the central bank’s stance remains accommodative.
Rajan had been widely expected to hold the benchmark repo rate – the level at which it lends to commercial banks – at 6.50 percent on Tuesday.
“It is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action”, Rajan said in a statement. The other two members from the RBI will, of course, be the Governor and the Deputy Governor in charge of monetary policy.
The central bank is also implementing a liquidity framework indicating a move toward zero liquidity deficit.
“The term of Rajan is concluding on September 5”.
“If you see how we have approached this, we have given a longer term path but we fixate on the next post”.
Prime Minister Narendra Modi´s government has still to pick a successor, while senior official told Reuters last week that candidates are being shortlisted for a six-member monetary policy committee.
Although the monetary policy committee will be split 50-50 between representatives appointed by the central bank and the government, the governor holds a tie-breaking vote.
“The reality is such emails are not from me and the RBI does not give out money directly to ordinary citizens, even though we print plenty of it”, he cited. “I impact the lives of the people of this country with the decision that I take on interest rates and inflation”.
June’s annual consumer price inflation (CPI) rate-the latest available-rose to 5.77 percent, up from May’s 5.76 percent and April’s 5.39 percent, and marked the fastest pace of price increase since August 2014. “People will be equals on the MPC”, Rajan said, while allaying fears about possibility of RBI getting compromised under the new system.
Some of the controversial speeches made by him include the one where he quoted American political philosopher Francis Fukuyama to question whether strong governments can really help a country or in defence of tolerance in the middle of a debate started by the killing of a Muslim man over suspicion of storing beef, or questioning the premise of the high-octane Make in India campaign.
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During his three years in office, Rajan has boosted foreign exchange reserves to a record, stabilized the rupee and pressured banks to begin cleaning up US$120 billion of souring loans.
