The RBI is not anti-growth in keeping policy rate unchanged, said governor Raghuram Rajan on Tuesday. The RBI must not be blamed for high interest rates, which are essentially the risk premium that over-leveraged corporates pay to banks, he said in an interaction with the media after the release of the monetary policy.
When most market instruments are signalling an interest rate fall, why is the RBI reluctant to cut?
We have to be careful about letting ourselves be led by looking in the mirror. We have not pre-determined any course of action. Our course of action is determined by the incoming data. Going forward, given that we do not want to flip-flop, we want to be relatively sure that we are on track. Remember 6% in 2015 doesn’t necessarily mean 6% in 2016 as well. Inflation is not a one-way street.
There is a view that the RBI is not addressing growth enough…
What we have seen again and again in India — and outside India also — is that the way to have sustainable growth is to have moderate inflation. I think it is very shortsighted when people say we are not helping growth this quarter. We are not talking of quarters, but years of sustainable growth. In order to get that, you need to fight inflation and beat it. The RBI is certainly not against growth.
But Indian companies are paying high interest rates…
Long-term bonds have come down by 60-70 bps since July. Short-term rates have come down because we have managed liquidity. Those are positives for corporate India. The immense risk premium that is being demanded of some corporates because of their leverage, the risks that they have taken and because of inability or unwillingness to repay, should not be attributed to the RBI.
How seriously do you take your inflation expectations survey?
What we need to take away from the survey is the direction of expectations. People trash the inflation survey too easily. The respondents may not be reading financial newspapers and have a sophisticated model in mind. But their inflationary expectations matter. While we are not focussed on the level, the changes do tell us that expectations are changing.
What is the biggest external risk now?
I would say, a few months ago, the biggest external risk was capital flows. Now, it is growth. The weak growth in industrial economies is having a dampening effect on export growth. The trend in exports has been downwards. Slow growth will imply monetary policy in advanced countries will stay easy for a longer period.
Is the total debt tied in frauds and wilful defaulters alarming?
I would emphasise that the frauds and wilful defaulters will not be huge, but it is big. I would doubt it would extend into lakhs of crores. We know there are big defaults, some of which are labelled frauds. Wilful default delegitimises the system. We need to pursue those and ensure that nobody is above the law.
Was there a pressure from the government to cut rates?
The word pressure is misused. There is a healthy dialogue that goes on. We are not combatants, but on the same side. We are very respectful of the views of the government and we try and accommodate to the extent we can and we explain where can’t and why we can’t.
What are the relaxations you are giving banks on restructuring?
We have looked at the arguments of bankers and the key issue is whether we can agree on a price range that would protect the banks from overpaying and, at the same time, give Sebi the comfort that minority shareholders are not hurt. There will be a methodology for the pricing.