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Rajan Hints at Rate Cut, Says India to be “Least Affected” from China Turmoil

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Washington: Reserve Bank of India (RBI) Governor Raghuram Rajan has not ruled out cutting interest rates in India for a fourth time, admitting that the world’s central problem is continued slowing economic growth. “We’ll look at the data as it comes in and take a further view. We have not said we are finished,” he said in an interview with CNBC television in Jackson Hole, Wyoming, where he’s attending an economic symposium. After cutting its repo rate by 75 basis points this year, the RBI kept the rate on hold at its last policy review, saying it wanted to monitor inflation and wait for lenders to further lower their lending rates.

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The RBI, Rajan said, has reached an agreement with the government on a new monetary policy committee that largely meets the goal of transitioning from a system where the governor alone is responsible for decisions in order to insulate it from outside pressure, he said. “The shape of the committee that we’ve agreed to with the government. The government is going to announce this … does do a lot of this,” he said. The agreement on the new rate setting panel was different from a proposal circulated in July that would allow the government to appoint the majority of members. “There’s an agreement with the government, which is not that plan,” Rajan said. He didn’t give more details. The committee would replace the current rate-setting system once the RBI Act of 1934 is amended in parliament. Having a committee would make it easier for individuals to resist pressure and ensure that “monetary policy doesn’t change overnight” if one person drops out, Rajan said. “We also need a transition path from where we are now to that committee,” he said. “It can’t be that overnight the committee takes over and nobody understands what the views of the committee are.”

Rajan said that he sees a “mood of optimism” in India’s economy and that the nation is relatively insulated from a slowdown in China. He called for lawmakers to overcome their differences to implement a goods and services tax, which he said, would be “one of the most important changes in India”. He also said a proposed bankruptcy code would also be “extremely important”. “If we can get a good bankruptcy code, we can start issuing long-term bonds, which is absolutely necessary to finance infrastructure, finance all the big things the government plans,” Rajan said.
He also cautioned the US federal reserve on going ahead with a rate hike, especially at a time when world economic growth is stalling which has led to massive volatility in currency, equity and commodity markets. “My position over time has been don’t do it when the world is in turmoil. “It’s a long anticipated event, it has to happen sometime. everybody knows it has to happen..but pick your time. “Earlier on Friday Federal Reserve Vice Chairman Stanley Fischer that it was too early to tell whether volatility in the market made it more or less compelling to raise rates at the central bank’s mid-September policy meeting.

(IANS)

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RBI Won’t Hesitate on Steps for Financial Stability, Says Governor

Das further said that in a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives

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Reserve Bank of India. VOA

Assuring the crisis-hit NBFC sector will be monitored, Reserve Bank of India Governor Shaktikanta Das on Friday said the central bank will not hesitate to take any required measure to maintain the financial stability of the economy.

In a lecture at the Lal Bahadur Shastri National Academy of Administration, Mussoorie, on the “evolving role of central banks”, Das also said that financial stability is major factor considered in the RBI’s monetary policy.

“In the non-banking sector, the Reserve Bank has recently come out with draft guidelines for a robust liquidity framework for the NBFCs. We are also giving a fresh look at their regulatory and supervisory framework. It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust,” he said.

“The Reserve Bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors. The Reserve Bank will not hesitate to take any required steps to maintain financial stability,” he added.

Reserve Bank of India. Wikimedia Commons

The liquidity crisis in the non-banking financial companies (NBFC) came to light when IL&FS defaulted on a commercial paper in September.

Das further said that in a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives.

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“Post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability and therefore financial stability has emerged as another key consideration for monetary policy, though jury is still out as to whether it should be added as an explicit objective of monetary policy.

“The fact remains that though the focus of monetary policy is mainly on inflation and growth, the underlying theme has always been financial stability,” the Governor said. (IANS)