Mumbai: Reserve Bank of India Governor Raghuram Rajan is due to announce the second bi-monthly monetary policy review of the fiscal on Tuesday, at a time when he has become the focus of controversy sparked by attacks for failure to lower interest rates and boost the economy.
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BJP MP Subramanian Swamy has written two letters to PM Modi demanding Rajan’s removal accusing him of “wilfully and deliberately wrecking the Indian economy”.
Retail inflation soared to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months.
The RBI also retained the growth projection of 7.6 per cent for 2016-17 citing corporate profits and a surge in consumption.
At the last review, Rajan had cut the policy rate by 0.25 per cent but taken a host of measures to improve the liquidity and reduce the cost of funds for banks.
On growth, the central bank said some high frequency indicators for April point to a firming recovery, although it is still uneven. However, low interest rates also lead to easier flow of credit which often fuels inflation as consumer demand goes up which drives the prices.
Monetary policy to remain accommodative. As a result of which, the repo rate and the CRR have been kept unchanged.
Helped by an oil price slump, Rajan has cut the repo rate by 150 bps since January 2015 – including a 25 bps reduction in early April – but there are now reasons to pause.
The Indian media is abuzz with predictions about whether the popular central banker will be given a second term as governor.
We gave out the licences but “we presume they (the entities) also analysed the potential business prospects after seeing other players”, he said.
“We expect RBI to retain its accommodative stance on prospects of better monsoon even as it sounds cautious on the recent hardening of CPI inflation”, said Anubhuti Sahay, economist at Standard Chartered Bank.
Nonetheless, he said, there are upside risks to the price index trajectory such as firming global commodity prices, particularly crude oil and the 7th pay commission awards which will have to be factored into projections as soon as clarity on implementation emerges.
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The Governor observed that there are potential disinflationary pressures (arising from a strong monsoon, continued astute food management and expansion in supply capacity, especially in services) as well as potential inflationary pressures (from food items as well as a reversal in commodity prices). “I feel Raghuram Rajan is not appropriate for the country”.
