A day after keeping interest rates unchanged, Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday said inflation is still a concern, but the deflationary global environment gives the central bank some headroom in its monetary policy.
“We still have concerns over inflation. Given the deflationary environment elsewhere, it is actually easier for us because we are not fighting inflation in an environment where inflation is picking up elsewhere. I think we are still in conventional monetary policy territory,” Rajan said in a post-policy conference call with analysts.
The governor also pitched for increasing the tax exemption limit on financial investments by individuals from Rs 1.5 lakh a year. “Remember the government increased the limit for tax benefit in savings by Rs 50,000 in the last budget. The question is — is there room for more primarily because the real tax benefit has fallen over time because the limit was at Rs 1 lakh for a long time. Maybe what we have to do is increase that.”
The RBI on Tuesday held key interest rates steady at 7.75%, and left room for any possible action only after the budget.
Rajan also made it clear that he would not like to do a “flip-flop” on the policy front and clarified that the mid-policy action was taken to assuage concerns of some people, who were calling RBI as “tardy” in its policy formulating.