Finance Minister nudges RBI to cut key rate
Jaitley wants RBI to consider rate cut; Rajan defends focus on inflation
By : DC Correspondent
Update: 2014-08-11 06:32 GMT
New Delhi: Indicating the goverment’s preference for a cut in interest rate, finance minister Arun Jaitley said on Sunday that he had already made his mind clear and hoped the RBI will take decision after taking into account various factors. In the last two credit policies announced after the formation of the BJP-led NDA government, RBI had maintained status-quo on interest rates.
“I, on the same evening (June 3 and August 5) already issued a clear statement and I think that’s very clear. This an issue that the RBI decides and I am sure they factor in various circumstances,” Mr Jaitley said after addressing the central board of the Reserve Bank. Last week after RBI announced the monetary policy, Mr Jaitley had said inflation was moderating and going forward “the RBI should examine the liquidity situation, inflation and growth in setting policy rates”.
RBI governor Raghuram Rajan said as of now he thinks the policy to contain retail inflation is on target. “We (RBI’s policy measures) are contingent on the data coming in,” said Dr Rajan.The governor said that reduction in statutory liquidity ratio will not be helpful in expanding credit growth to private industry right now because demand for credit is yet to pick up.
He indicated that besides banks, industry has now various other options including external borrowing. “There is a lot of market borrowing going on, including through external markets. So in that sense credit growth itself has been muted but overall resources going toward financing is quite strong,” said the RBI governor. However, he said that later on when the growth will pick up the cut is SLR will be helpful.
Mr Rajan also said that preliminary discussions have started on the proposed modern monetary policy framework that is aimed at addressing the challenges of a complex economy.
“I think we will be discussing the monetary framework over the course of the year. Just now, we started the preliminary discussions, but I think it will be discussed over the course of the year and the framework will be developed along with the finance ministry,” said the RBI governor.