On Tuesday RBI Governor Raghuram Rajan left key rates unchanged while announcing the 6th and final monetary policy of the current fiscal. Rajan cited inflation risks and growth concerns and pegged further easing of monetary policy on government’s budget proposals.
“The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation,” Rajan said.
As expected. the repo or short term lending rate remains at 6.75 per cent and the reverse repo rate stays at 7.75 per cent.
Projecting 5% inflation by the end of fiscal 2017, Rajan added that structural reforms in the budget “that boost growth while controlling spending will create more space for monetary policy to support growth”.
Expecting a gradual uptick in growth, the Governor said he expects 7.6 per cent GDP growth in next fiscal “notwithstanding significant headwinds” and based this on normal monsoons, the large positive terms of trade gains, improving real incomes of households and lower input costs of firms.
He, however, indicated to adjust the forecast path as and when more clarity emerges on the timing of implementation of 7th Pay Commission.
“The implementation of the Seventh Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years. The Reserve Bank will adjust the forecast path as and when more clarity emerges on the timing of implementation,” Rajan said.
Rajan also said the Indian economy was currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude.
He also offered to help start-ups, saying that the Reserve Bank will take steps to further ‘ease of doing business’ and contribute to a growth of the sector which will help create an enabling framework for getting foreign funds into them.
Markets, which opened in the green, slid into the red zone after key policy rates were left unchanged. However, this wasn’t a knee-jerk reaction to the monetary policy review as the Central Bank was widely expected to maintain status quo and wait for cues from the Budget that would provide key macroeconomic direction.
Post budget RBI will announce its first bi-monthly monetary policy statement for 2016-17 on Tuesday, April 5, 2016.
( With inputs from PTI)