Reserve Bank of India governor Raghuram Rajan called for global central banks to adopt a system for assessing the wider impact of their actions, including unconventional monetary policies now in use.
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“The 3.5 percent number (fiscal deficit as a percentage of gross domestic product) is what he had in mind”. “But broadly, we are moving towards a strengthening growth”, he added.
This story has not been edited by Firstpost staff and is generated by auto-feed. How it will reflect on the monetary policy, you will have to wait and see, ” Mr Rajan told reporters after a post budget meeting of the RBI board with the Finance and other officials of the Ministry.
Fielding questions on fiscal deficit, Rajan said the government could explore the possibility of moving to a cyclically-adjusted fiscal deficit target. Both the markets and the RBI have been comforted by that.
Rajan proposed that a group of academics should measure and analyse the “spillover” effects of monetary policies and indicate which should be used and which avoided.
“Given the importance of spillovers from monetary policies, especially in the face of globally low inflation, it is important we start building a global consensus on how to get better outcomes for the world”, he said but cautioned that an worldwide agreement may be hard given that a number of country authorities like central banks have explicit domestic mandates.
The Bank of Japan has also taken interest rates into negative territory for the first time while the US Federal Reserve is expected to tighten monetary policy only gradually after years of near-zero rates and quantitative easing.
Rajan’s suggestion yesterday at the same conference came days after the European Central Bank cut all its main interest rate, expanded asset purchases and launched a loan programme to pay banks to lend to firms and households. The slowing exports – in decline now for 13th straight month – was also deliberated upon. “We explained to RBI Board the important features of the Budget”, Jaitley said after the meeting. “But the rising levels of NPAs is a matter of concern for all of us”.
Finance minister Arun Jaitley asked banks on Saturday not to “overstate” the crisis of bad loans as that could derail lending and hurt the economy, though he promised to look into individual misdemeanour amid outrage over the Rs 7,000 crore default by liquor baron Vijay Mallya.
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As per recent RBI estimates, the total exposure of commercial banks in terms of gross NPAs, the rescheduled loans and write-offs was 14.1 percent of deposits that works out to around Rs.9,455 billion (around Rs.9.5 lakh crore).
