While more than a dozen names have been tossed around, bond investors are betting on a more dovish governor: One-year interest-rate swaps have declined 18 basis points to 6.51 percent since Rajan said mid-June he will leave the central bank at the end of his term.
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“Rajan’s tenor could be highlighted for developing distinctive approach to policy stance and policy strategy, development of liquidity framework through autonomous and discretionary liquidity drivers and better visibility of interest rate regime”, said Soumyajit Niyogi, Associate Director, Credit & Market Research Group, India Ratings.
Nevertheless, what stood out in Tuesday’s policy review, which is expected to be the last of its kind before the Monetary Policy Committee (MPC) takes over, is the element of continuity in Mr Rajan’s thinking and approach, and the likelihood that it may be carried forward even after he exits the central bank.
“That the government has to decide on and the process has started”, said Rajan, adding that there is some likelihood that the committee will be in place for the October 2016 review. The market anticipates at least one more rate reduction by March as a normal monsoon is expected to help bring down food prices, which had risen of late.
“In our view, the measures we have taken in the RBI were and are justified given the conditions that we have”.
Indian central bank calls on govt to set up monetary panel; holds rate was posted in Business of TheNews International – https://www.thenews.com.pk on August 10, 2016 and was last updated on August 10, 2016.
Having faced a slew of attacks over speaking his mind on a range of issues, Reserve Bank of India Governor Raghuram Rajan, it now appears, has learnt the art of avoidance. In comparison, the RBI’s growth forecast for the current fiscal is 7.6% and its inflation target is 5% for March 2017.
Repo rate under the liquidity adjustment facility (LAF): unchanged at 6.50 per cent.
The other two MPC members from the RBI will, of course, be the Governor and the Deputy Governor.
“At the core of the monetary policy, is the desire to see a sustainable growth rate along with empowering the banks to lend more at competitive rates”, Assocham Secretary General D.S. Rawat said. Outgoing RBI Governor Raghuram Rajan could not propose any cut in repo rate.
He said that when the Congress-led UPA was in power, it had announced the name of Rajan as successor to the then RBI Govenor Subba Rao three months before his term was to conclude.
Rajan observed that it is not correct to assume that GST implementation would necessarily stoke inflation. “I think, this has been a fantastic experience”, he said. While the RBI has highlighted that risks to inflation trajectory could emanate from food prices, impact of 7th pay commission and possible impact from GST, we believe that risks from these remain manageable.
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Defending the tough decisions taken by him as RBI Governor he said that he was never anxious about a second term.
