The RBI governor has clarified that he does not plan to go in for further tightening of rates if CPI inflation continues to move down along intended glide path
GN Bureau | April 1, 2014
For the handful of market watchers expecting another rabbit being pulled out of a hat, Reserve Bank of India governor Raghuram Rajan’s first bi-monthly monetary policy announcement on Tuesday came as a complete bummer.
In line with market expectations, Rajan decided to keep the policy rates unchanged as the existing inflationary pressures did not call for a review.
At 8 percent, the repo rate, at which banks borrow from the apex bank, remained unchanged and the reverse repo rate, at which the RBI borrows from banks, has also been maintained at 7 percent. In addition the cash reserve ratio, the amount of cash banks have to set aside with the apex bank, has also been left untouched at 4 percent.
“At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy. Furthermore, if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated at this juncture,” Rajan said during his announcement.
Conceding the accuracy of market predictions on the policy stance, the governor joked that “the only thing surprising about the monetary policy announcement was the lack of any surprise.”
The governor also made an important announcement that certain recommendations of the Urjit Patel committee have been adopted. These include adopting the new CPI (combined) as the key measure of inflation, transition to a bi-monthly monetary policy cycle (of which this was the first announcement), and reducing emphasis on overnight “guaranteed-access” windows for liquidity management.
On the issue of new bank licences and changes in the banking framework, Rajan clarified that the election commission nod for new bank licences was sought to ensure that the announcement would not come under any cloud of doubt and controversy. He also said that licences would be issued virtually on a tap basis to ensure more banks in the sector. With the governor mentioning differentiated licences for banks, it is also clear that he in principle agrees with the Dr Nachiket Mor panel’s recommendation for introducing payments banks. “The intent is to expand the variety and efficiency of players in the banking system while maintaining financial stability. The Reserve Bank will also be open to banking mergers, provided competition and stability are not compromised,” Rajan said.
Emphasising the urgency for a stable economic policy, Rajan said that for growth to be restored it is very important for the new government to be a stable one which should use funds on investments instead of consumption.
Industry bodies meanwhile were disappointed as they wanted Rajan to slash rates and revive growth. “At a time when growth impulses remain weak and WPI inflation has been on the declining trajectory for the last nine months, the RBI should have taken this opportunity to announce a cut in policy rates which would stimulate demand and kick-start the investment cycle. This is especially the case as deposit growth has outpaced growth in credit indicating that high cost of credit is dissuading industry from building additional capacity,” CII director general Chandrajit Banerjee said.
The next policy announcement has been scheduled for June 3. With a new and hopefully a stable government in power, Rajan can be expected to make more interesting announcements.
More than three percent of medicines in India are ‘Not of Standard Quality’ (NSQ) and 0.0245 percent spurious, reveals a survey report on drugs quality by the ministry of health. The survey carried out by National Institute of Biologicals (NIB), Noida found that out of the
Bharat electronics limited (BEL) has launched a new weapon control system — Remote Controlled Weapon Station (RCWS) / Air Defence Weapon Station (ADWS) for 12.7 mm gun of MBT Arjun Mk II battle tank during recently concluded Aero India 2017 in Bengaluru. The new weapon control system
The Sasikala camp is in talks with the O Panneerselvam (OPS) faction and they are trying to win them over, says an AIADMK insider. Negotiation have started between the main AIADMK, which is with Sasikala, and the splinter group that is supporting former chief minister OPS. The party insider
On October 1 last year, Mehtab Alam Ansari, 30, who worked as a tailor in Delhi, had arrived in his village, Chepa Khurd in Barkagaon tehsil of Harazibagh district, to celebrate Eid with his family. That morning, he was nearing Dadi Kalan, a neighbouring village, to meet an acquaintance when he hea
State run enterprise oil and natural gas corporation limited (ONGC) has decided to invest Rs 7,327 crore to develop five projects to produce oil and gas. The decision was taken in its 290th board meeting held on February 23. The projects include development of R-Series fields, incl
The civic election results could well have long term implications in Maharashtra’s politics, with the Bharatiya Janata Party (BJP) doing dramatically well and the Shiv Sena failing to get a simple majority. The Shiv Sena won 84 seats, while the BJP bagged 82 seats. Th