That is very clear.
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“We hope that over the span of the next year, I want to put something like March 2017 on the table as when we hope that the cleanup will have been done”, Rajan said at a post-monetary policy press conference.
The RBI lowered the rate by 125 basis points this year, including a larger-than-expected 50 bps cut at its last policy review in late September.
ICICI Bank chief Chanda Kochhar said, “As impact of monetary policy steps taken so far play out in terms of bank funding costs, lending rates are expected to continue to fall”.
“We will have to figure out a way as and when the GST comes in. It’s not the central factor in our deliberations, going forward”, Rajan said.
The focus on inflation reflects the RBI’s more targeted approach under Rajan. “The rate cuts have been front-loaded”.
“Banks have reduced the deposits rates and as the effect of this rate cut is seen on the bank’s balance sheet, banks will pass on further benefit to borrowers in terms of rate cut”, said Rakesh Sharma, MD& CEO of Canara Bank to ET. Those interviewed also agreed that Rajan would refrain from changing policy until inflation was in check and an expected increase in USA interest rates occurred without causing too much emerging-market turmoil. The guidelines on the base rate calculation based on marginal cost of funds will be watched and appropriate actions will be taken on the same.
In June it snipped off a further 25 basis points before holding rates at its meeting in August and then slashed the repo rate the next month to its lowest level since March 2011. The Government is examining linking small savings interest rates to market rates.
“The median base lending rate has declined only by 60 basis points”, Rajan said.
In line with market expectations, the Reserve Bank of India (RBI), on Tuesday kept key poilcy rates unchanged but affirmed the central bank’s accommodative stance considering inflation will likely perform better than expected.
The Federal Reserve must forcefully communicate that U.S. interest rates will rise at a gradual pace after its initial hike, Chicago Federal Reserve President Charles Evans said on Tuesday (Dec 1).
Rajan also cited “weak” global growth and a flagging Chinese economy as reasons to remain cautious. Data on Monday showed the economy grew 7.4 percent in the July-September quarter, faster than China, but below the government’s goal of 8.0 to 8.5 percent annual growth. “So, the intent is that at least for a time, we will be able to make incremental loans on the marginal cost pricing while their historical or their legacy loans will be on the base rate, that is the intent”, said the RBI governor. “We need sustainable growth, we will ensure there is sustainable growth and we will ensure the maximum sustainable growth we can get”.
“RBI adopted a cautious outlook on food inflation and non-food, non-fuel CPI expressing concerns on rabi output due to unseasonal rains and shortening of winter due to El Nino weather conditions”.
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RBI cited provisional estimates of gross value added (GVA) at basic prices for Q2 of 2015-16, which rose on the back of acceleration in industrial activity, to suggest that the economy is in the early stages of a recovery, though with some areas of continued weakness.
