Mumbai: Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday held the key policy rates steady at his final meeting as the head of the country’s central bank, citing upside risks to its inflation target for March 2017.
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Addressing the media at the third BI-Monthly Monetary Policy Statement 2016-17, Rajan made a decision to keep the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.5 percent, while the CRR of scheduled banks unchanged at 4.0 percent of net demand and time liabilities.
Rajan took charge in September 2013 in one of the most challenging macro-environments for a central bank governor.
Better than average rainfall in India’s ongoing monsoon season is expected to reduce the upward pressure on food prices.
Rajan charged bankers with inventing newer excuse for delaying the rate cuts and pointed out that concerns over the FCNR (B) redemptions, despite RBI’s public assurance of making it non-disruptive, are the latest one in a series.
Abheek Barua, chief economist, HDFC Bank said that food prices would ease with a normal monsoon and decline in global food prices.
“Despite easy liquidity, banks have passed past rate cuts into lending rates only modestly”, he said. “That is why when people kept asking me “you in are for a secondterm”, I said, “well there are things to be finished”.But that doesn’t mean in any way that I was absolutely hell bent on having a second term”. The agreement between the government and the RBI says that the latter can not allow inflation to rise above six percent for more than three-quarters at a time.
Mumbai: Allaying fears of market disruption in view of Dollars 20 billion worth of redemptions in foreign deposit accounts in the coming months, the Reserve Bank on Tuesday said it will continue with domestic liquidity operations and foreign exchange interventions to ensure smooth repayments.
The central bank is also implementing a liquidity framework indicating a move toward zero liquidity deficit.
The Reserve Bank today said it will be challenging to roll out GST from April 1, 2017 but the new indirect tax regime will eventually boost business sentiment and investments. China, driven by stimulus, seems to have recovered; Brazil and Russian Federation might be out of intensive care; but the U.S. and Europe sputter.
Industry expressed disappointment with the RBI decision. Markets were not expecting cuts in policy rates: Rajan lived up to those expectations.
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“Whatever answer I give will be problematic, so I will just pass”, said the on-leave professor of finance at Chicago University, who will return to academia after end of his 3-year term at the Reserve Bank of India on September 4. If that is the case, there would be six people sitting together and deciding what the path of interest rates will be. So it has been a fantastic experience and I hope there is some value added. I feel, I have done what was needed to be done.
