RBI governor Raghuram Rajan believes that fiscal consolidation would be higher than the state headline numbers by the government in the Budget. In a conference call with analysts after announcing a surprise rate cut, Rajan said he is hopeful banks would transmit the current and previous rate cuts by the beginning of 2015-16. Excerpts:

On what basis do you expect better fiscal consolidation than the headline numbers indicated in the Budget?

The point we were making is that there are a number of expressed intents by the government to clean up the legacy issues of the past and ensure what you see is what you get in the Budget. The revenue projections are a little more conservative. As we have said there are a number of intents which could result in a higher quality consolidation process than the headline numbers. This is one reason for some confidence expressed in our statements.

Anecdotal evidence indicates past rate cuts have not been passed on. Are you concerned about the lack of transmission?

The liquidity stance has been fairly accommodative. But what happens is that the process of transmission is somewhat asymmetric and banks tend to be faster in raising rates than cutting rates. I have no doubt that the pressure of these two rate cuts over the time would feed into lower rates. But we are also examining whether there are any institutional constraints while passing on these rate cuts. We, as you know, have made changes to the base rate determination, and we will be examining this very carefully to understand whether it is working as effective as it should. I think as we move into the new fiscal year, we would see more transmission into lower interest rates.

The timeline for achieving 4% inflation is FY19, could you elaborate?

Two years after the January 2016, so by the end of January 2018 we should have reached the mid-point of the stated inflation target.

Given the volatile components in the CPI basket, how much the government support does the RBI need to achieve 4% CPI by 2019?

I think as far as how much support is required, only time will tell. But I do think you should take comfort from the willingness of the government to go into the inflation targeting framework as a partner in some sense. We get our orders on the framework from the elected representatives. So in that sense that is our framework and the government, of course, has to be supportive in this process and it has been in the past.

What do you think of the shift of public debt management from RBI?

The notion is that this agency this would be independent and not suffer from conflict of interests and these issues are probably not important now. There will be substantial RBI support to the structure. On the shifting of the regulatory powers of debt markets from the RBI, there are clauses in the finance Bill referring to this, but the finance minister’s speech does not make any reference to this and the speech generally flags the important action of the government. I am not worried.

The government has said that capital flows in equity are a policy rather than regulatory matter…

This is an area where we talk to each other and precisely who has the power to issue the final regulation. The consultation does take place. It is reasonable to say that in the equity markets perhaps the government should have the right. The consultation between the RBI and the government will continue. We don’t do anything in our regulatory purview without consulting the government and I presume that would be the case with the government as well.