Is Reserve Bank of India governor Raghuram Rajan satisfied with the Union Budget and the government’s vow to stick to the path of fiscal consolidation despite challenges? Rajan, who will speak to the heads of public sector banks and financial institutions at the second Gyan Sangam in Gurgaon, barely four days after the presentation of the Budget, is likely to give some indications on the same and outline the future course of action from the central bank.
With the government deciding to stick to the fiscal deficit target of 3.5% for 2016-17, banks are hoping that “RBI will do its bit” and cut rates again, a move that will help them reduce their lending rates. On February 2, the governor had clearly said that the India’s commitment to “fiscal rectitude” would be critical for the Bank’s decision .
“Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5% by the end of 2016-17,” he had said.
RBI, in 2015, reduced repo rate—the rate at which banks borrow from the central bank – by 125 basis points but lenders have not transmitted the benefit to the consumers due to high deposit rates.