RBI to look at full Budget while taking a call on rates: Raghuram Rajan

MUMBAI(PTI): Reserve Bank Governor Raghuram Rajan on Tuesday said Budget proposals will have a major bearing on the future course of the 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.
Raghuram Rajan, Governor, Reserve Bank of India

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 on Tuesday, waiting for the government to do more.
Raghuram Rajan, Governor, Reserve Bank of India

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.

Rajan, however, promised that RBI will “look through” some of the stress on inflation because of implementation of the recommendations, but will specifically analyse the impact of housing rent allowance increase on the overall inflation number.

Posted by on February 2, 2016. Filed under Economy. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.