ICICI Bank’s Chanda Kochhar welcomed the continued accommodative policy stance, as also the measures to ensure adequate liquidity, but refrained from promising any rate cut.
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In the Third Bi-monthly Policy Statement for 2016-17, RBI Governor Raghuram Rajan said that as regards the management of the imminent FCNR (B) redemptions, the central bank has been frontloading liquidity provision through open market operations and spot interventions/deliveries of forward purchases. The RBI kept the repo rate, the key rate at which the central bank lends money to commercial banks, at 6.5 per cent.
RBI Deputy Governor Urjit Patel said about 55 per cent of Consumer Price Index basket will not be impacted by GST and since the cascading effect of “tax-on-tax” disappears, so the effective rate on many goods and services will come down.
He said “easy liquidity conditions” and market competition should prompt banks to lower the rates, while announcing that changes are underway to the way banks decide their lending rates. The six-member Monetary Policy Committee that will determine interest rates after Rajan leaves will now have to pick up from where he left off. Rajan also said that he had nothing against those who criticise him as he believes that criticism and accolades are part of the job. Terming his tenure as “fantastic”, Rajan said, “Snap judgements by critics do not matter as I have made useful contributions and the results will be visible in the next 5-6 years”.
That is close to the upper end of the 4 percent plus/minus percentage points monetary policy target of the RBI that was accepted by the government last week. Rajan is targeting 5 percent in March 2017 and 4 percent a year later, plus or minus two percent. A key programme, the ongoing Asset Quality Review, initiated by Rajan past year, to push public and private sector banks to clean up their balance sheets of rising bad loans, will be watched carefully till its deadline ends in March 2017.
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“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. Almost three years on, the rupee is stable, trade deficits have narrowed and GDP growth at 7.6 percent is the highest among major global economies. He said the RBI would work with the banks to achieve this, but stressed there would be no return to the days of forbearance. Assessing the impact of his efforts, Rajan said the RBI is comfortable with the (non-performing assets) recognition process. 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”.
