Raghuram Rajan, who has been a target of vociferous attack in the last few months, on Tuesday said that he has enjoyed every minute of his job as Reserve Bank of India governor. The repo rate – the rate at which the RBI lends to commercial banks – remains at 6.5%.
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Rajan said in a post-policy press conference, “Despite easy liquidity, banks have passed past rate cuts into lending rates only modestly”. 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.
“Lot of favourable developments in the economy – above average monsoon, low G-Sec rate, high forex reserve, low bond yield, twin deficit well within the range – augur well for rate cut of at least 0.5 per cent”, he said. The central bank has retained its March 2017 inflation target of 5 per cent with upside risks.
The liquidity is comfortable in the system, following the moves announced by Rajan at the first bi-monthly monetary policy in review on this front.
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, a former International Monetary Fund chief economist, also ruled out joining politics.
Rajan has been reluctant to address the path to hitting an ultimate 4 percent inflation target, preferring to focus on the 5 percent goal for March.
“We may see some near-term respite”, he added, citing an improvement in farm output following a good monsoon this year as the main reason for food price rises to ease.
During his time at the RBI, Rajan steered India out of its worst currency crisis in two decades and, helped by tumbling oil and commodity prices, succeeded in halving inflation from double-digit levels prevailing when he took over at the bank. “Those, I just put aside and I don’t even pay any attention to it”, said Rajan in the interview.
However, before leaving the central bank, Rajan expressed his interest in completing the unfinished task of helping public sector banks to clean up their balance sheets. “The current accommodative stance of monetary policy and comfortable liquidity conditions should also provide a congenial environment for the reinvigoration of aggregate demand conditions”, the RBI said.
It also maintained the Growth Domestic Product outlook at 7.6%.
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On non-performing assets, the RBI governor expressed satisfaction that banks have a culture that recognises NPAs now. We expect oil prices to remain contained at $40-45 per barrel in 2016. He, however, said that he was never anxious about reappointment or a future career in government and did the best in the interest of the country and he was the “best team player”.
