Reserve Bank of India Governor Raghuram Rajan kept key rates unchanged in his final monetary policy review. Rajan is scheduled to vacate his post as RBI Governor next month.
“It has been a fantastic experience as RBI Governor,” Rajan said at the press conference in Mumbai.
However, Rajan retained growth projection for the current fiscal at 7.6 per cent but cautioned that sluggishness in global economy may neutralise India’s momentum which has been built up by a good monsoon and an uptick in rural demand.
“The current accommodative stance of monetary policy and comfortable liquidity conditions should also provide a congenial environment for the reinvigoration of aggregate demand conditions,” the RBI monetary policy review statement said.
“Accordingly, the GVA growth projection for 2016-17 is retained at 7.6 per cent, with risks facing the economy at this juncture evenly balanced around it,” Rajan added.
In its 3rd bi-monthly monetary policy review, RBI said the momentum of growth is “expected to be quickened” by the normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to consumption spending that can be expected from the 7th Central Pay Commission’s award.
However, successive downgrades of global growth projections by multilateral agencies and the continuing sluggishness in world trade points to further slackening of external demand going forward, Rajan said.
On Goods and Service Tax (GST), the Governor said that the passage of the constitutional amendment bill augurs well for the growing political consensus for economic reforms.
“This (GST) should boost business sentiment and eventually investment,” Rajan said.
But he also cautioned that the to implement GST by April 2017 will be “challenging”.
Rajan also added that as the economy improves there will be a greater possibility of rate cut by banks.
The RBI, which has now become an ‘inflation-targeting’ central bank, wants to get the headline inflation number down to 5 per cent by March 2017.
At the press conference Rajan reminded everyone that the will demit office after completing his three year term. He also said that a six-member Monetary Policy Committee (MPC) will mostly decide on the interest rate at the next review on October 4.
When asked about what advise he has for his successor, Rajan promptly replied, “I don’t advice my successor”.
Earlier, before Rajan decided to step down, BJP member Subramanian Swamy had targeted Rajan and called for his ouster in a strongly worded letter to Prime Minister Narendra Modi. Swamy had accused Rajan of deliberately trying to wreck the Indian economy. An embarrassed BJP had to then come out in Rajan’s defence.
(With inputs from PTI)