India Holds Rate in Rajan’s Last Meeting in Charge

Complaining that banks have passed benefits only in a “modest” measure, Rajan said a pick-up in credit demand, which would follow the economic recovery and competition for corporate loans after the ongoing balance sheet clean-up by the state-run lenders, will ensure softer lending rates. “I am also a government appointed person and the next Governor will also be appointed by government”.

“There will be an attempt to convince each other within the committee”.

After his decision to return back to academia, there have been voices suggesting that his candid public speeches were one of the aspects which made the government uncomfortable about reappointing Rajan for another term.

In accordance with a monetary policy framework agreement it had entered into with RBI in February last year, government notified consumer price inflation target of 4% for the next five years, with an upper tolerance level of 6% and lower tolerance limit of 2%.

Outgoing Governor Raghuram Rajan on Tuesday said he would like to leave a clean slate for his successor at the Reserve Bank so that the person does not have to deal with any legacy issues on taking charge.

“In the conduct of monetary policy, credibility is crucial – and India’s credibility has been properly restored”, said Tirthankar Patnaik, India strategist with Mizuho Bank Ltd.

“One person can move off the committee, but it will retain its characteristics and tradition”. Fluctuations in crude prices remain a worry for the inflation outlook. “A lot depends on which price goes up and which price comes down”, he added. “Start understanding the world we are in which has changed quite a bit”, Rajan said.

“Going ahead, we expect a significant cut in repo rate to facilitate the competitiveness of the manufacturing sector and to compete in the worldwide market”, Mahesh Gupta, President, PHD Chamber of Commerce and Industry was quoted in a statement.

On the efficacy of the MPC, he said, “I have no doubt that whoever is appointed by the MPC will aim to achieve that as no commission will want to fail in its set objectives”.

The space that the RBI was referring to was widely believed to be inflation. What is important to look at is whether there is one- time price adjustment, which doesn’t lead to generalise inflation.

In the third bi-monthly policy review of this fiscal, RBI kept the benchmark repurchase rate (at which RBI lends to the system) at 5-year low of 6.50 percent.

The second point that he highlighted was on phishing mails in the names of RBI Governors.

“If that is the case, there would be six people sitting together and deciding what the path of interest rates will be”.

“We hope a commendable job of cleaning up the banks’ of their toxic assets would be carried forward by the new RBI Governor”, Rawat added.

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