The Reserve Bank of India, in a surprising move, slashed the repo rate by 50bps on Tuesday, bringing it down to a four-and-a-half year low of 6.75% from 7.25%. While speaking at a press conference after the monetary policy, RBI governor Raghuram Rajan clarified, "We were not throwing out Diwali bonus."
The apex bank also cut growth output for 2015-16 from the earlier 7.6% to 7.4%, on the back of slower growth in the global economy and trade, a continuing lack of appetite for new investment in the private sector, and the constraint imposed by stressed assets on bank lending and waning business confidence.
While answering a question about him being hawkish on his policy stance, he said:
On economy's fundamentals
No country is an island. We stand out as a country with strong fundamentals. The economy is going through hard times and there are no silver bullets. The government is trying very hard to turn around the economy. The government's fiscal deficit programme is on track.
On inflation
Inflation is likely to go up from September for a few months as favourable base effects would reverse. Since our last review on August 4, bulk of our conditions for further accommodation have been met. Therefore, the focus should now shift to bringing inflation to around 5% by the end of fiscal 2016-17. Only prices of vegetables and pulses are up the only worry is the inflation in the services sector like medical care, education. Efficient food management which the government going to embark will keep prices down.
On industry
Power distribution companies have to be back on track. We need to look at resolution for these companies. The capacity utilisation, the first factor which leads to more investment, is still very tepid and suggest there is room for more domestic demand which will be non-inflationary and it would create more investment. We need to restart investment. Corporate investment has been weak.
On interest rates
Expects the transmission of the entire 125 basis points cut that RBI undertook to be passed on as lower lending rates. There are certain hurdles in the transmission like small savings rate being much higher, base rate computation formula, etc.
(Compiled by Manju AB)
