RBI Governor Dr Raghuram Rajan has assured that he will act outside policy if inflation does not soften in a press conference on 18 December 2013
RBI (Reserve Bank of India) has kept repo rate unchanged at 7.75% and CRR unchanged at 4% in its 18th December policy meeting. In a press conference following this announcement, RBI Governor Dr Raghuram Rajan made it clear that he was not soft on inflation and that he will act outside policy, if inflation does not soften. It is felt that inflation as per current data looks higher because of the rise in vegetable prices and these are likely to come down. In this context, Dr Rajan indicated, “We will not react to every spike in inflation, which is temporary. We as responsible central bankers will react to longer term phenomena.”
Dr Rajan said the RBI will wait for more inflation data to come in to make up its mind whether inflation was well-entrenched and called for higher rates. The current inflation data is marred by noise, he said. In a month’s time the inflation picture in the country will become clearer and RBI will tighten policy if required to control inflation. Dr Rajan was clear that there was no room for complacency on CPI inflation.
Dr Rajan also pointed out that this was the correct policy in a weak economic environment. He admitted that while inflation could be caused by supply bottlenecks, the RBI would have no option but to control demand even if supply-driven inflation persisted.
Dr Rajan argued that the RBI policy was not the sole controlling factor in inflation. Central and State governments in the country will be working on inflation, and RBI will take a decision after the government has improved matters. This is because inflation was even now stable excluding food and fuel.
On the growth-inflation issue, the RBI governor forecasted that GDP growth will be higher in the second half of FY2014. Also, the government is firm on achieving the fiscal deficit target by March 2014. Revenue from disinvestment will help in doing so. The exchange rate of the rupee has stabilised and the current account deficit position is under control.
On NPAs (non-performing assets), Dr Rajan said that there will be an appropriate circular in two weeks. Finally, Dr Rajan added that the curbs on borrowing from LAF (liquidity adjustment facility) will continue to exist.
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