NEW DELHI – India’s central bank governor said Sunday the country was on course to meet the bank’s targets on reduced inflation, adding that it was working with the new government on monetary policy.
Reserve Bank of India (RBI) governor Raghuram Rajan said the bank had started discussions with Prime Minister Narendra Modi’s right-wing government on a monetary policy framework that includes measures to control inflation.
The RBI on Tuesday left the benchmark repo rate, at which it lends to commercial banks, unchanged, at a steep 8.0 percent, citing a need to clamp down on rising prices. Retail inflation slipped to 7.3 percent in June, and the RBI said earlier this year it was aiming for consumer-price inflation of 8.0 percent next January.
“We think at the current interest rate policy rate we are on course to meet those targets,” Rajan told reporters after a meeting of the RBI’s central board in New Delhi. “We will be discussing the monetary policy framework through the course of the year. Just now we have started a preliminary discussion (with the government),” he said.
Businesses have been clamouring for a cut, saying high rates discourage investment needed to help India’s economy get back on its feet.
The government, which swept to power at elections in May, has pledged to reform and revive an economy growing at less than five percent over the last two years. Finance Minister Arun Jaitley addressed the meeting, the first since the government’s maiden budget was announced last month. Jaitley told the bank board that the government’s “policy regime is being geared towards attaining higher growth rate, lower inflation and sustainable external balance”, an RBI statement issued after the meet said.
Rajan explained Sunday that the recent cut in the statutory liquidity ratio, the amount banks must keep in government securities, by 50 basis points to 22 percent, would not immediately help expand credit growth. “Over time as the private sector, public sector starts investing more, you will see that credit growth would pick up,” he said. The central bank governor, who famously predicted the 2008 global financial crisis, earlier this week warned of another market crash as asset prices surge.