RBI’s Rajan: We know that we are on the right track

Mumbai(dna): Raghuram Rajan, governor Reserve Bank of India (RBI) announced the first bi-monthly policy on April 7 where he left the repo rate and Cash Reserve Ratio (CRR) unchanged at 7.5% and 4.0%, respectively.

RBI said that the India’s GDP for the current fiscal is likely to grow at 7.8%, up 30 basis points.

Zee Business met Rajan for an interview.


…On rate cut

44 banks have brought down their base rates. Banks take time to adjust rates. We reduced repo rate in January but we didn’t expect banks to lower rates in March but we hoped they would do that in April. Banks cut rates because they had the room to do that. March was a tight season that is why banks had less room to lower rates.

…On rate cut outlook

The 50 bps rate cut by RBI will show its effects. Market competition will force banks to lower their rates as some banks are offering loans at lower rates. Corporate India is getting loans at 7.5%, so how long can banks maintain high lending rates? Banks will have to maintain a balance. Not cutting lending rates for 3 months isn’t good.

…On cost of funds argument

Banks say that they don’t want floating rate deposits. Fixed deposit rate causes asset liability miss match and that keeps lending rates high. World over, banks follow floating deposit rates.

…On further rate cut by RBI

RBI has already cut repo rate by 50 bps and now the unseasonal rains and Iran deal’s effects will have to be taken into account. It crude oil prices fall then inflation will come down further and lending rates will follow.

…On inflation

We hope that inflation will fall to 4% in August and because of which base rate will come down as well.

. If inflation falls then we may cut rates further. Apart from inflation, US Fed, fiscal spending, etc will have to be watched.

… On Modi govt one year

There has been a lot of work in the past one year. There has been a lot of progress. The number of stalled projects have come down from Rs 8 lakh crore to Rs 5-6 lakh crore. New projects are beginning which is a good thing, Modi government’s worked on coal auction and spectrum auction is appreciable.

…On Moody’s upgrade

Moody’s rating outlook improvement is also positive but it is difficult to say that whether first upgrade will come from Moody’s, Fitch or S&P. We know that we are on the right track. We have a lot of work to do. From industrial corridor to the rest of the projects, a lot of work is left. We don’t have to worry about upgrades but focus on these projects.

…On monetary policy committee

We must empower the monetary policy committee and for that RBI Act has to be amended. After careful thought the Act can be amended. The US Fed’s governor and others are permanent employees. Bank of England has a lot of outsiders. Monetery Policy Commiitte isn’t currently not an urgent matter but a mix of RBI and outside experts will be a good thing,

….ON global economy

World economy is weak at the moment. USA is doing good at the moment but the first quarter hasn’t been that well. Euro Zone is coming out of recession but recovery is still some time away. Japan is recovering slowly and its ecnomy is consumption based. There are talks that if China grows below 7% then India will become an attractive destination and we have to live up to the expectations.

Posted by on April 9, 2015. Filed under Economy, Editorial. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.