RBI has started talks on ‘modern’ monetary policy with Govt: Rajan

Reserve Bank Governor Raghuram Rajan on Sunday said preliminary discussions have started on the proposed modern monetary policy framework that is aimed at addressing the challenges of a complex economy.

‘I think we will be discussing the monetary framework over the course of the year. Just now, we started the preliminary discussions, but I think it will be discussed over the course of the year and the framework will be developed along with the Finance Ministry,’ he said.

In his Budget speech, Finance Minister Arun Jaitley had said that it was essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy.

He had said that government was in close consultations with the RBI and such a framework will be put in place. An expert committee headed by RBI Deputy Governor Urjit Patel was appointed to revise and strengthen the monetary policy framework. Among other steps, it had recommended retail inflation or CPI (combined) should be used as the nominal anchor for a flexible inflation targeting framework.

The Economic Survey tabled in Parliament ahead of the Budget too had pitched for a formal monetary policy framework through which the RBI is given clarity of objective (a CPI inflation target) and operational autonomy in pursuit of that target.

Replying to another query on recent cuts in SLR, the governor said at this point reduction in statutory liquidity ratio will not be helpful in expanding credit growth to private industry because demand for credit is yet to pick up.

‘Credit growth is still to pick up in a strong way.Part of the reason why credit growth is not picking up...is (because) industry is also borrowing from market.