In the final policy review under the governorship of Rajan, the Reserve Bank of India held the repo, the rate at which it lends to banks, steady at 6.5 percent, in line with economists’ expectations.
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With 27 days left for his three-year term at the Reserve Bank of India (RBI) to draw to a close, Governor Raghuram Rajan on Wednesday said he was “open” to the idea of an extension, but talks with the government had not reached a stage to consider the prospect. Policy repo and reverse repo rates remain unchanged at 6.5 per cent and 6 per cent, respectively. He could also shift RBI policy focus to inflation-targeting and sign a fresh monetary policy mandate with the government previous year.
Marginal standing facility (MSF) rate:7.0 per cent.
He has also persuaded the government to form a monetary policy committee, made up of central bankers and members chosen by the government, to decide interest rate changes in future.
“This should boost business sentiment and eventually investment”, said Rajan after announcing his last monetary policy before he exits on September 4. It plunged 29 basis points last month, the most for a benchmark 10-year security since May 2013, amid a global bond rally, improved domestic liquidity and speculation that Rajan’s yet-to-be-named successor will be more aggressive in lowering borrowing costs.
“It is premature to talk about inflationary impact of GST when we don’t know what the rates would be. We are within the inflation band given to us by the Government and expect to be around 5 per cent CPI inflation by March 2017, absent unforeseen eventualities”, he added.
Rajan today said RBI has been front-loading liquidity provision through its open market operations and spot interventions or deliveries of forward purchases, in wake of the expected pressure in the FCNR (B) redemptions expected in September.
His approach to harness the inflation, as far as interest rates on fixed deposits are concerned, recently got vindicated by the government when the retail inflation target of 4% by March 2018 received a formal acceptance last week.
On the much talked about Monetary Policy Committee, the apex bank chief said, “My hope is the next monetary policy statement will be by the proposed Monetary Policy Committee (MPC)”.
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Meanwhile, Mr Rajan on Tuesday reiterated that it makes little sense to deploy the RBI’s excess funds into recapitalisation of state-run banks and added that the central bank will soon be coming out with a detailed paper presenting its arguments.
