‘RBI waiting for Budget before taking interest call’
BY PTI3 Feb 2016 10:19 PM GMT
PTI3 Feb 2016 10:19 PM GMT
Reserve Bank Governor Raghuram Rajan on Tuesday said that the Budget proposals will have a major bearing on the future course of monetary policy, and RBI is looking at a broader package involving structural reforms helping supply side bottlenecks and higher quality spending in the document. “We have to look at the entire Budget package. One can imagine situations where there are lots of high quality spending initiatives which increase potential for supply that could offset some of the expansion in expenditure, if there is,” Rajan told representatives from wire agencies during an interaction.
“The more work done by the fiscal side, the more room available for the monetary side (to cut rates), that is almost a theorem,” he said, adding that RBI is not fixated on a particular aspect in the Budget.
RBI shifted its stance to become accommodative last year and has since reduced the policy rate by as much as 125 bps. It held rates at the sixth monetary policy review, waiting for the government
to do more.
Last year, Rajan had gone for a rate cut shortly after the Budget announcement following favourable provisions. “We neither confirm nor deny our capacity to do off-meeting moves. But there has to be a special need to do it,” he explained. Stating that RBI offers its recommendations to the Finance Ministry privately, Rajan reiterated that it would be happy to see some measures on the supply side, which can ease the cost of services like education and healthcare. The governor also said that apart from the Budget, the central bank will look at the inflation number very closely while taking a call on easing rates further, adding that “we have not witnessed the general trend of an ease in the price-rise situation which we normally see in November and December”.
He said RBI has made its own set of calculations on the impact of the Seventh Pay Panel recommendations, but declined to specify the same.
Meanwhile, there are signs of decline in exports bottoming out and the current account deficit (CAD) is likely to remain “well contained and easily financed”, RBI Governor Raghuram Rajan said.
In the July-September quarter of the current fiscal, CAD rose to $8.2 billion or 1.6 per cent of the GDP, from 1.2 per cent or $6.1 billion in the April-June quarter. Earlier, Finance Minister Arun Jaitley had said CAD is expected to be 1.2 per cent of the GDP for the entire 2015-16 fiscal. On exports, Rajan said, they remained in “contraction mode for the 13th successive month in December, although there are indications of a sequential bottoming out”.
In volume terms too, the rate of decline appears to be moderating, he said. Exports contracted for 13th month in a row in December 2015 as outward shipments shrank 14.75 per cent to $22.2 billion amid a global demand slowdown.
Imports too plunged 3.88 per cent to $33.9 billion in December over the same month previous year. Trade deficit during the month under review widened to $11.6 billion as against $9.17 billion in December 2014. During April-December period of the current fiscal, exports dipped 18 per cent to $196.6 billion as compared to $239.9 billion in the same period of the previous fiscal.
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