At a press conference, RBI governor Shaktikanta Das explains the reason for keeping the interest rate unchanged during the fifth bimonthly policy review. Excerpts:
The market was expecting RBI to look through the recent spike in inflation as it could be temporary, and cut rates. That has not happened. What is your view on the issue?
There was case for looking through the current spike in the headline inflation which is mainly due to the spike in food inflation. But our calculations show that during January to March, food inflation, in particular, is likely to remain very high and its moderation in the coming months is dependent on many factors.
With regard to core inflation, it is expected to remain in the current zone of below 4%. But again, there are evidences that certain decisions related to the telecom tariff and other things may play out. So, inflation is expected to come down to 3.8% in Q2 of the next financial year, but there are several uncertainties, and the MPC would like to have greater clarity with regard to that.
Let us also keep in mind that price control is the prime objective of monetary policy as prescribed in the RBI Act. RBI is also required to keep in mind the objective of growth and that has been given due weightage. And, the MPC has given a clear, unambiguous forward guidance [that] there is space for further rate cut and RBI will act if the evolving situation so warrants.
With regard to growth, there are certain green shoots, but it is too premature to assume how sustainable it would be.
You said you would like to see the forthcoming Budget. Is there a fear of fiscal slippage?
With regard to the Budget, it is not a question of worry that there will be more fiscal deficit… in fact, I have said that in situations like this when growth has fallen, the monetary and fiscal authorities [must] continue to work together in greater coordination. I am not saying we are worried, but we would like to have greater clarity with regard to the kind and nature of the counter cyclical, fiscal measures, if any, to be announced by the government in the Budget.
RBI has a flexible inflation targeting mandate which gives some flexibility to support growth while accepting a slightly higher inflation. But you decided not to cut rates. Why?
The timing of the rate cut is also very important to optimise its impact. We should allow the measures taken by government and RBI to play out; we should allow some more time.
As the regulator, should RBI be referring NBFCs for bankruptcy proceedings?
RBI’s role starts and ends with referring it to NCLT. We only refer it to NCLT and then the NCLT takes over. Under the NCLT’s broad oversight, the committee of creditors and resolution professionals will work on the resolution of that particular stressed entity. So RBI’s role is only to analyse the situation and refer it.
Let us look at the whole situation in a pragmatic manner. We cannot add greater disruption and uncertainty to the system. I think the regulator is best placed to assess the current state of affairs in an NBFC. Because, it is RBI which is monitoring and supervising them. RBI has a responsibility towards financial stability. So, RBI is best placed to identify the vulnerabilities and refer to NCLT.
What is the assessment of the PMC Bank crisis?
There is a forensic audit which is underway. The final report is expected by the end of the month. Simultaneously, PMC Bank, with the help of professional valuers, is assessing the realisable value of assets which has been mortgaged by the companies who availed the loans, and the other assets which have been identified by the Economic Offences Wing, Enforcement Directorate.
We have also put in place a coordination mechanism between the administrator of PMC Bank, the Economic Offences Wing, ED, and RBI, to monitor these things regularly and take steps for monetising these assets. Further course of action will be taken after we get a value of these assets.
