Millennium Post

‘Future rate cuts depend on monsoon, crude prices’

 Reserve Bank Governor Raghuram Rajan on Tuesday said the future trajectory of the monetary policy will depend on monsoon, the way the government manages <g data-gr-id="33">shocks,</g> if any, emanating from it and crude prices.

“As we get more confidence on the monsoon out-turn, the government <g data-gr-id="40">reaction</g> and energy prices, we will have a sense of what is possible on the policy front,” Rajan told analysts and researchers on a call after cutting key rates by 0.25 per cent in the policy earlier in the day. He was answering a question on forward guidance for the policy. Unlike other policy statements, the second bi-monthly 
<g data-gr-id="59">statement</g> does not explicitly make a mention on the guidance.

Elaborating on the rationale for Tuesday’s cut and the move forward, the Governor said, “Going forward, a room may absolutely open up if the monsoons <g data-gr-id="42">is</g> better than currently expected, or if government actions mitigate any potential rise in food prices and if energy prices stay contained.” “Clearly, it is possible that more room may open up and we will take full advantage of it as and when we see room opening up,” the Governor said.

Earlier, addressing reporters in the post-policy presser, the Governor had said the decision to cut is a calculative one, where the RBI has decided to “err” to boost investments and help the recovery process. From a conservative perspective, the RBI would have waited for the monsoon to play out and then cut rate, he said. 

Rajan also said the policy is formed with a view on the inflation trajectory for the future. “We are not saying inflation today is high, that is a mistake that some people are making while looking at our commentary. We do acknowledge the fact that inflation today is below 5 per cent. But we have to determine the policy in a forward-looking manner wherein we have to estimate what it would be in the future and determine policy on that basis,” the Governor said. Given the limitations posed by the explicit inflation targets adopted this year, the RBI has done its best, Rajan said, reiterating that it would be a mistake to blame the interest rates as the only stumbling block for revival.

In the policy statement, RBI has increased its January 2016 inflation forecast to 6 <g data-gr-id="30">per cent</g>. The Governor said timely government intervention can break the links like those between 
rainfall and food production and the production and inflation. It will also be “premature” to take the higher inflation for granted, he said, pointing out to instances in the past where strong 
government action helped curb inflation.

He also said the lower inflation, coupled with lower growth makes it hard for a hike in the minimum support prices for grains, which has the potential to help control both <g data-gr-id="34">inflation</g> as well as fiscal consolidation. 

Encourage borrowers to hedge <g data-gr-id="72">agri</g> risks: RBI to banks
 The Reserve Bank has asked banks to encourage borrowers to hedge <g data-gr-id="80">agri-products</g> on commodity bourses, Forward Markets Commission (FMC) said while directing MCX, <g data-gr-id="73">NCDEX</g> and NMCE to create awareness on the same. “RBI has issued a notification dated 28th May, 2015, advising banks to encourage large agricultural borrowers such as agricultural commodity processors, traders, millers, aggregators etc, to hedge their risks related to agricultural commodity prices,” FMC said in a circular. FMC has asked MCX, <g data-gr-id="74">NCDEX</g> and NMCE to take initiative and engage with <g data-gr-id="75">nationalised</g> banks for the awareness <g data-gr-id="76">programmes</g>. 
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