RBI policy review meet: What stopped former RBI Governor Raghuram Rajan from cutting rates?
RBI policy review meet: Former RBI governor Raghuram Rajan, in his last monetary policy review meet before being replaced by Urjit Patel, kept the repo rate unchanged at 6.5% and the CRR at 4%. he blamed 'uncertainties' (especially inflation) for not slashing the rates as demanded by Indian corporates and hinted at by the top members of the Narendra Modi Cabinet. The common citizen, with big EMIs to pay and homes to buy, was disappointed too that the RBI Guv did not lessen their loan payments load or make it easier to purchase anything from flats to cars. (Reuters)
Some of the factors that held the RBI Governor's hands when it came to cutting rates were first of all economic growth, which was robust enough at 7.9% and then 7.1 % in April for the last quarter of FY16. Since the economy was already growing at an acceptable enough rate the RBI saw no reason to take on added risk by cutting rates. (Reuters)
The US Fed under Janet Yellen have hinted and hinted that the tightening is coming. The whiplash effect will hit India as well as the rest of the world and this raised uncertainty in the markets as well as central bank circles. Uncertainty is frowned upon by RBI and it almost always takes the the decision to cut it out before any damage is done.(Reuters)
Brexit was a lot on the RBI's mind. Britain was creating all kinds of problems for the world markets. Since Britain is a big Indian trading partner and there was too much at stake for everyone, and things could deteriorate fast, a rate cut was definitely out of the realm of RBI possibility. (Reuters)
RBI policy review is seen as a big opportunity to push in liquidity. But Raghuram Rajan had injected copious amounts of liquidity into the economy whose effects were still to be seen. So, 'hold' was the decison by the RBI governor.(Reuters)
Here are the highlights of the former RBI Governor Raghuram Rajan's decision during the last policy review meet in August: 1. Repo rate unchanged at 6.50%, reverse repo 6%, status quo on CRR at 4 per cent, sees inflation at 5 per cent; maintains FY17 GDP growth forecast at 7.6 per cent. (Reuters)
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