RBI policy review: Prime Minister Narendra Modi-led NDA government on Tuesday received a pat on its back from the Reserve Bank of India (RBI) Governor Raghuram Rajan for not only sticking...
RBI policy review: Prime Minister Narendra Modi-led NDA government on Tuesday received a pat on its back from the Reserve Bank of India (RBI) Governor Raghuram Rajan for not only sticking to the fiscal deficit target, but also focusing on alleviating rural distress. Along expected lines today, Rajan cut repo rate by 25 basis points in RBI’s monetary policy review. RBI also cut MSF rate by 75 basis points to 7% and cut the daily CRR maintenance from 95% of the requirement to 90%.
In the central bank’s first monetary policy review of the current financial year, Raghuram Rajan termed the government’s commitment to fiscal consolidation “commendable.”
According to Rajan the NDA government’s move to adhere to the path of fiscal consolidation in Budget 2016 will support the disinflation process going forward. “There will be some offsetting downside pressures (on inflation) stemming from tepid demand in the global economy, government’s effective supply side measures keeping a check on food prices, and the central government’s commendable commitment to fiscal consolidation,” said Rajan.
Rajan also lauded the government’s “comprehensive strategy for reinvigorating demand in the rural economy, enhancing the economy’s social and physical infrastructure, and improving the environment for doing business and deepening institutional reform.”
Rajan added, “The implementation of these measures should improve supply conditions and allow efficiency and productivity gains to accrue. Given weak private investment in the face of low capacity utilisation, a reduction in the policy rate by 25 bps will help strengthen activity and aid the government’s initiatives”.
“The stance of monetary policy will remain accommodative. The Reserve Bank will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up,” Rajan concluded.