Five key takeaways from RBI monetary policy

Five key takeaways from RBI monetary policy

"Don't look at today's 25 basis points cut in isolation. Look at it as a composite  reduction. The banks now also have liquidity to transmit more to borrowers," said RBI governor Raghuram Rajan

Photo: Reuters
Anand Adhikari
  • Apr 05, 2016,
  • Updated Apr 05, 2016, 1:01 PM IST

Continuing with the accommodative stance, RBI Governor Raghuram Rajan on Tuesday reduced the repo rate by 25 basis points to 6.50 per cent. In a media interaction, Rajan responded on a range of issues:

 

  • Rate cuts: Conditions for More Rate Cuts in Future Monetary policy stance remains accommodative. Going forward , we  would be looking for further monetary room  in  signs of  good monsoon, further reading of low headline inflation, indication of softening in core inflation  and  further evidence of transmission of interest rates cut.
  • Transmission of interest rates: We hope to see  significant transmission in the next few months. We have already made 150 basis points cut in the repo rate since  January last  year. There is already a 25-50 basis points reduction that has come about from new marginal cost of funding method. It has happened  before the policy. It is a significant change from the base year which was in operation earlier. Don't look at today's 25 basis points cut in isolation. Look at it as a composite  reduction. The banks now also have liquidity to transmit more to borrowers.
  • More cash in the system: The cash with the public has increased quite a bit. It is Rs 50-60,000 crore in excess than what we were estimating.  We have to figure out. We are trying to understand it. The cash does increase during election time.  You see not just in the state going to election and also neighbouring state. We need to understand it.
  • Panama investigations: We are obviously part of the investigating team that  is going to look into this  matter. It is important to note that there also legitimate reasons to have accounts outside.  We have to see what is legitimate and what is not legitimate. That is the process of investigation (to find out).
  • Reasons for not making NPA defaulter list public: The regulator doesn't make a loan. At a time when economy was getting into trouble , RBI decided to give forbearance in 2010 based on certain assumptions. In the Kingfisher case , it was based on estimates of whether industry will recover or not. Similarly, there were letters from the airline industry and others that the industry will recover. The act of default happens in business  because of variety of reasons. We have no problem in publishing the wilful defaulters list. In fact , some courts have also prevented banks from publishing such list.

 

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