Under pressure to cut interest rates to lower cost of capital, RBI Governor Raghuram Rajan on Friday said >keeping inflation low is the key task for sustainable economic growth of the country.
RBI is scheduled to hold its next monetary policy review meeting on September 29 where Mr. Rajan is widely expected to announce this year’s fourth rate cut and expectations for the same have further increased after the U.S. Federal Reserve last night decided on a status quo to its ultra-low rare regime.
Addressing industry leaders and bankers this morning at an event, Mr. Rajan said that limping global growth coupled with uncertainty about the U.S. growth probably compelled the Federal Reserve to keep rates on hold.
On situation in India, he said the Consumer Price Index (CPI) based retail inflation at 3.6 per cent currently was “largely due to base effect” excluding which it would be around 5.5 per cent.
“The differential between WPI (Wholesale Price Index) and CPI is a source of problems. We have to be careful while pursuing growth and have to make it sustainable. The key is to keep inflation low not just today, but also in the future,” Mr. Rajan said.
On the U.S. central bank’s decision to delay the much awaited rate hike, Mr. Rajan said, “We have noted the Fed decision of yesterday. I presume it reflects their desire to wait for more information before they take a final view.
“Clearly, thus far the markets seem to have reacted somewhat benignly certainly toward us. What we will have to do is continue what we have been doing which was anyways the intention regardless of the Fed decision.”
Speaking on a wide range of issues, Mr. Rajan said the central bank would put all banking licenses “on tap” going forward.
He however expressed disappointment over the use of Aadhaar being curbed and said it can help regulators contain over-borrowing.
The RBI Chief also expressed concern about rising NPAs and said the banks badly need to clean their books. He however welcomed the government’s move to bring in bankruptcy code to tackle rising NPAs.
He also frowned upon the banks’ practice of project evaluation being outsourced to outside consultants, saying it should be done in-house.