Millennium Post

Birthday boy Rajan doesn’t let India Inc party

Fifty-two-year-old Rajan, who became RBI chief in September 2013, chose to keep interest rates unchanged for the seventh time, out of 11 monetary policy decisions taken under his regime so far.

At the post policy press conference here, reporters wished him ‘happy birthday’, which he acknowledged with a smile but did not say anything. “Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the RBI to await them and maintain the current interest rate stance,” RBI Governor Raghuram Rajan said in the sixth bi-monthly monetary policy statement. This stance follows a surprise rate cut by RBI on January 15 to tackle disinflationary pressure.

Accordingly, the RBI left the short-term lending rate or repo rate at 7.75 per cent and the cash balance requirement on the lenders or CRR at 4 per cent. But to help exports sector, which of late has been struggling following more headwinds in the global economy, the central bank has decided to replace export credit refinance facility with the provision of system level liquidity with effect from February 7.

Also, RBI slashed Statutory Liquidity Ratio (SLR), a percentage of funds banks have to necessarily park with RBI, by 50 basis points to 21.5 per cent. On inflation, the policy document took consolation in the declining trend and noted that even the upturn in December turned out to be muted relative to projections.

“Heightened volatility in global financial markets, including through the exchange rate channel, also constitute a significant risk to the inflation assessment. Looking ahead, inflation is likely to be around the target level of 6 per cent by January next.” Talking about the path of inflation in 2015-16, Rajan said: “The Reserve Bank will keenly monitor the revision in CPI, which will rebase the index to 2012 and incorporate a more representative consumption basket along with methodological improvements”.

Despite fiscal deficit touching 99 per cent by November, the Governor said he was confident that the government will not miss the budgeted 4.1 per cent target. On the surprise 25 bps rate cut on January 15, he said the decision was led by falling inflationary expectations and data on weak commodity prices and muted rural wage growth.

“Having committed in public statements to initiate a change in the monetary policy stance as soon as incoming data permitted, the Reserve Bank cut the policy rate on January 15,” he added.

Referring to economic growth, RBI said that though revision in the base year for GDP and calculation methods will mean some revision in GDP growth numbers for 2014-15 as well as in the forecasts, growth expectations should be tempered.
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