Yet a host of other price pressures are looming.
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PHD Chamber of Commerce President Mahesh Gupta said “there is a lot of scope to reduce the repo rate as good monsoon is visible and inflationary expectations are benign”. He was addressing the customary press conference after announcing the third bi-monthly monetary policy for 2016-17.
“It is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action”, RBI Governor Rajan said in his statement. “I’ve had great relationship with the old government and the people who matter now”.
“I don’t think there is any doubt that neither will the government nominees on the MPC turn out to be toeing the government line, which is the fear being expressed, nor will the RBI representatives toe the Governor’s line so that it becomes a fight between the Governor and the government”. The Governor, under the new dispensation, will have a casting vote in case of a tie. “The stance of monetary policy remains accommodative and will continue to emphasise the adequate provision of liquidity”, RBI said.
Marginal standing facility (MSF) rate:7.0 per cent.
With a view to further front-loading the provision of liquidity, Rajan said it has been made a decision to conduct an open market purchase auction on August 11, 2016.
“One person can move off the committee, but it will retain its characteristics and tradition”.
The medium-term outlook for exports is dodgy. That would make the review the last one to be led by the Governor alone. First, says the Governor, it was a liquidity issue. He said he “had been in dialogue with the government over staying back but it did not reach an agreement”.
Asked whether it was the crony capitalists who were behind his ouster as their interests were hit by the bank clean-ups, Mr Rajan dismissed this saying “I don’t think you should attribute this to some hidden hand”. When that was addressed, it became the coming Foreign Currency Non Resident, or FCNR (B), redemption that was the reason for not cutting rates, and he adds: “I have a suspicion that some new concern will crop up once the FCNR (B) redemptions are behind us”. Some banks have taken more steps than we required them to take. That we are poised the way we are as an economy with a sharper-than-anticipated increase in food prices tells its own tale of the risks posed by inflation. “We will work together again in a constructive manner”.
Rajan is to leave office on 4 September. The government is yet to name its three members.
Industry body Assocham said it looks forward to formation of an institutional framework for deciding the policy interest rates in sync with the inflation and growth.
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Whoever takes over from Rajan will need to follow through on efforts to clean up bad loans hobbling Indian banks, so that they can finance the investment needed if India is to hold onto its place as one of the world´s fastest growing major economies.
