Fed move was just a postponement: Raghuram Rajan

Updated - November 17, 2021 04:57 am IST

Published - September 20, 2013 03:33 pm IST - CHENNAI

Reserve Bank of India Governor Raghuram Rajan said on Friday that the postponement of tapering by the FED (Federal Reserve of the U.S.) offered the country “time to create a bullet-proof national balance sheet and growth agenda” that created confidence in citizens and investors alike.

In his first policy statement since assuming office as Governor, Dr. Rajan said the Fed's move was just a postponement. The measures of the RBI in the past two weeks, he stated, had helped banks to bring in money.

“Till yesterday (Thursday), we had received $ 466 million through the Foreign Currency Non-Resident (B) and $ 917 million through the swap facility to a total of nearly $ 1.4 billion. We have started the process to issue two kinds of inflation-indexed retail certificates, one with a lump-sum payment at the end, and the other with indexed interest payments. We have set up the central credit registry for large bank borrowers. The various committees we announced are swinging into action,” he further stated.

The RBI, on Thusday, implemented the full liberalization of the process of new bank branches with some safeguards, to encourage inclusion, he pointed out.

He said that easing the exceptional liquidity measures was warranted since the external environment had improved and also because both the Government and the RBI had used the time since the measures were put in place “to narrow the current account deficit and to ease its financing”.

“We have also announced an intention to return to normal monetary operations where the Repo Rate will return to being the effective policy rate, and liquidity conditions need not be as tight as they currently are,” he said.

He made it clear that the difference between the Marginal Standing Facility and the Repo Rate will be brought down to 100 basis points. However, recognizing the fact of inflationary pressures and also in the light of the need to preserve the internal value of the rupee, “we have raised the Repo Rate by 25 basis points,” he said.

“The intent here is that when the Repo Rate becomes the effective policy rate, it should be consistent with inflationary conditions in the economy. These measures will reduce the cost of bank financing substantially while allowing us to take an appropriately precautionary stance on inflation,” he pointed out.

He asserted that over the next few weeks, together with the Government, “we will take a close look at corporate distress and bank non-performing assets to see how we can accelerate the process of resolution.”

“We are taking a look at a variety of markets to deepen them, and make them more vibrant. Measures will be announced periodically,” he pointed out.

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