Further rate cuts will depend on Budget: Takeaways from RBI policy
RBI Governor Raghuram Rajan did not make any changes in repo rate and the cash reserve ratio (CRR) rate too remained unchangedbusiness Updated: Feb 17, 2016 08:32 IST
RBI Governor Raghuram Rajan on Tuesday did not make any changes in the repo rate and the cash reserve ratio (CRR) rate too remained unchanged.
Repo rate will remain at 6.75%, which means commercial banks can lend money from the central bank at the same rate as before. CRR rate also continues to be at 4%. Rajan said he is waiting for data on inflation before a decision is taken on changing rates. He also said that reforms in the Union Budget will allow more space for the monetary policy to support growth.
Gross value added (GVA), will be at a higher 7.6% in 2015-16, which is value of goods and services produced in an economy minus intermediate consumption. Rajan says that it is a factor of normal rainfall after two consecutive years of rainfall deficiency and improved household income coupled with lower input cost should contribute to strengthening the growth momentum.
“Inflation has evolved closely along the trajectory set by the monetary policy stance. With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6% should be met,” Rajan said. He also said that inflation will be around 5% by the end of 2016-17, without factoring in the implementation of the VII Central Pay Commission award, and that the RBI will adjust the forecast once the implementation is done.
The good news, according to Rajan is that rabi harvest is getting back on track. Businesses in the services category are likely to gain momentum. However, he pointed out that in the near-term industrial activity may have some constraints. Without elaborating in details, he said, “Industrial activity may be constrained by adverse base effects in Qtr 4 and still (have) weak exports, although the pickup in corporate profitability on the back of declining input costs may provide an offset.”
Ease of doing business
Rajan didn’t shy away from talking about Narendra Modi’s theme of “Ease of doing business”, and said that the RBI will take steps to help start-ups and will take necessary steps to build the eco-system. Some of the areas are enabling framework for receiving foreign venture capital, by differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, and simplification of documentation and reporting procedures.