Outgoing RBI Governor Raghuram Rajan today strongly defended his controversial public speeches as “perfectly legitimate” ones within the remit of a central bank head and asserted that he was never critical of the government in any instance.
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What makes this policy announcement different from the earlier ones is that this is the last policy announcement by the high profile and outgoing RBI Governor Mr. Raghuram Rajan whose term is coming to an end next month and he is proceeding to USA to pursue his academic interest.
My hope is the next monetary policy statement will be by the proposed Monetary Policy Committee (MPC).
Additionally, with uncertainty around global demand increasing post Brexit, oil prices have declined for the first time in July after surging in the preceding five months.
“Everything is in place for a Monetary Policy Committee except the selection of members”.
FCNR REDEMPTIONS: Earlier, some bankers said it was lack of liquidity that was holding the rates high. He accused the central banker of a willful and apparently deliberate attempt to wreck the economy, and also took a personal swipe at Rajan, who holds a US green card, for being “therefore mentally not fully Indian”.
Banks are generally having “difficulties”, and once the NPAs are cleaned up, they should be in a position to do the transmission in a better manner, Rajan said.
The central bank frets about the impact of the Seventh Pay Commission, which will raise government salaries.
In addition to this, this credit policy is the last one where a RBI governor might have played an important role in deciding the policy rate.
The Governor further said the banks now need to find out ways to restructure some of the large NPA accounts which would make them healthy for a longer period. “We have to see that price adjustment, if there is one, doesn’t become generalised inflation”, he was quoted by PTI as saying.
On food inflation, he said there is a seasonality in the higher vegetable prices at present, while the sowing patterns also suggest there being a possibility for the prices of pulses and cereals to come down.
“If the current softness in crude prices proves to be transient and as the output gap continues to close, inflation excluding food and fuel may continue to trend upwards and counterbalance the benefits of the expected easing of food inflation”, the RBI said. To support the British economy from the aftershocks of Brexit, the Bank of England cut its benchmark interest rates to record lows and upped its bond buying programme.
According to sources, the delay in naming a successor has much to do with choosing a candidate of Rajan’s caliber as an economist, but at the same time someone who would not be too rigid on his inflation taming style.
Rajan said it was “premature” to predict the inflationary impact of GST as the final GST rate is still unknown.
Banks will continue with a cash reserve ratio (CRR) of 4 per cent.
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He said the RBI will soon revise the marginal cost of funds-based lending rate framework for faster policy transmission.
