Urjit Patel, the RBI Governor in a first ever interview spoke about demonetisation, growth, rates and rupee. He said financial crisis likely under the new US President, Donald Trump.
Urjit Patel, the RBI Governor in a first ever elaborate interview to CNBC-TV 18, spoke about demonetisation, growth, rates and US Trade policy. In a spirited defence of demonetisation of Rs 500 and Rs 1000 that happened in November 8, 2016, he said that it was well managed and that remonetisation has been very quick. The Governor said that quick and faster remonetisation was part of the plan.
It may be recalled that of 86% of India’s currency in circulation was scrapped. With a large number of ATMs running dry, there seemed no end to people’s difficulties for sometime.
Despite government’s claims of remonetisation being complete, latest data (till 20 January, 2017) shows that currency with public is still 40% less than what it was a year ago .
An even more important question that was being asked was how successful has demonetisation been in achieving its stated objective? On that, a defensive Governor said that quick and faster remonetisation was part of the plan and has been achieved. However, he said, “we are open to constructive criticism”. On asking as to when was demonetisation planned, he said that currency printing plans were set in motion much before. “There are tens of thousands of bank branches and 4,000 currency chests. We need to be careful and try that this is a number which is not a mere estimate but a verified number both physically and in the accounting sense,” Patel added when asked about the estimated amount of old currency notes that have come back.
#UrjitPatelToNetwork18 — “Faster remonetisation was part of the plan”
Watch the exclusive interview tonight at 10. pic.twitter.com/iWS5xWubfT
— News18 (@CNNnews18) February 17, 2017
On macro economic indicators Governor Patel said that the best way to support durable growth is to keep the inflation low. And India’s 7.5 per cent GDP growth target should not be ridiculed.
India’s growth will bounce back after a sharp slowdown triggered by Prime Minister Narendra Modi’s clampdown on cash, said central bank Governor Urjit Patel.
“Almost everyone agrees that the impact is going to be a sharp ‘V,’ that we would have a downgrade of growth for a short period of time,” Patel kept the benchmark repurchase rate unchanged at 6.25 percent for a second straight meeting this month and changed the policy stance to “neutral” from “accommodative,” the first change since 2015. While consumer-price gains slowed, core inflation — which strips out volatile food and fuel costs — has been sticky and imperils the 4 percent mid-point of India’s inflation target range, Patel said.
“So, given how the inflation outlook changes, if at all, over the next few readings in terms of the data that comes about and our projections based on that for the next fiscal year,” a neutral stance gives the Reserve Bank of India more flexibility to cut, raise or hold rates as compared with an accommodative stance, he said.
US Trade Policy
Patel also expressed concern about a potential shift to trade protectionism under U.S. President Donald Trump but said financial markets have priced in most of the expected interest-rate increases from the Federal Reserve. He said financial crisis was a possibility under the new US President, DonaldTrump. And likely that nobody would be spared of financial volaitility from the United States.
However, India’s sound macroeconomic fundamentals — smaller budget deficit, flexible inflation targeting, high foreign-currency reserves and a modest current-account deficit — put the country in a good place to weather volatility, he said.
“We are at an important juncture and the possibility of negative consequences for countries around the world is a possibility,” Patel said. “Asia may come in for special treatment because almost two-thirds of the U.S. trade deficit in goods is with respect to Asia. We just have to see how things evolve in terms of tangible policy changes which the U.S. government so far seems to be fairly determined to carry through.”
— News18 (@CNNnews18) February 17, 2017
India must stick with its open trade regime, he said. Patel also said that the rupee is “broadly where it should be.” The currency has gained 1.2 percent in 2017 to 67.11 a dollar as of 9:28 a.m. in Mumbai, after falling to a record last year.
Concerns for India stem from a hardening of global commodity prices and “lack of a consistent policy enunciation from major economies is the main source of volatility,” Patel said. The RBI predicts gross value added — a key input of gross domestic product — to grow 7.4 percent in the fiscal year starting April 1 from 6.9 percent the previous year.