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.
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Rajan, who is going back to academics after his term ends on Sep 4, also said that if the people who attacked him had the power, they could have stopped him.
Rajan, who has chose to return to academia after his three-year tenure ends on September 4, said Tuesday’s policy review was likely to be the last one to be Governor-led, as a the exercise would be conducted by new six-member panel going forward. He saw room for one more cut of 0.25 percentage point in the year through March, while “any further space to cut rates would be a function of further disinflation”. The RBI has retained repo rate under the liquidity adjustment facility (LAF) at 6.5%, cash reserve ratio (CRR) of scheduled banks at 4%, reverse repo rate under the LAF at 6%, marginal standing facility (MSF) rate and the Bank Rate at 7% each.
Rajan said in a post-policy press conference, “Despite easy liquidity, banks have passed past rate cuts into lending rates only modestly”. “What is important is that you feel you made an important contribution and I think I have done a fantastic job”, the outgoing RBI governor said.
Having spent four years in India, three as RBI governor Mr Rajan said “I do not want to be a career bureaucrat or a technocrat”.
The RBI’s decision to maintain the policy rates was in expected lines said Smt.
Raghuram Rajan, who caught the government off guard in June by announcing he was stepping down in September, said he was unfazed by his critics and that the only thing that mattered was the impact of his decisions.
Interacting with the media later, Rajan said: “We do not see the FCNR (B) repayments as disruptive”.
“We expect the RBI to pause on August 9”, it said. But doing so will harm the central bank’s plans on permanent liquidity infusion into the system, he added.
Since the last monetary policy meeting, higher food prices and sticky services inflation have meant the June CPI inflation touched a 22-month high of 5.8 per cent.
The academic-turned-central banker spoke a lot across the country and overseas in the three years at helm, and had a special liking for educational institutes. While pulses inflation started moderating, prices of pulses have been rising again since April after a short-lived correction in the previous quarter.
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That doesn’t bode well for Prime Minister Modi’s administration, which last week formally implemented an inflation target of 4 percent for the next five years, supporting Rajan’s goal to keep inflation below 5 percent by March 2017.
