Not Hawkish, Hate Bird Analogies, Says Raghuram Rajan After Holding Rate
Reserve Bank Governor Raghuram Rajan on Tuesday kept the benchmark repo rate unchanged at a five-year low of 6.5 per cent. The decision was widely expected as retail inflation, which the RBI tracks to set interest rates, rose to 5.39 per cent in April from 4.83 per cent in March.
Dr Rajan said April's inflation data surprised on the upside and going forward, the RBI needs to see how it pans out. He added that a strong monsoon season, "astute" food management by the government and companies' increasing supply capacity could offset those risks.
"Given the uncertainties, the Reserve Bank will stay on hold, but the stance of monetary policy remains accommodative," Dr Rajan said.
Asked whether he had turned "hawkish" post April's inflation data, Dr Rajan said, "I hate bird analogies... its realistic assessment of data that has come in. There are potential disinflationary and inflationary pressures. We have to wait and see."
However, Dr Rajan cautiously signalled that the RBI could cut later this year if monsoon rains, and other factors, dampen upward pressure on food prices.
"I think to see the policy as hawkish is a bit premature. There is room for at least one rate cut until December," said Abheek Barua, chief economist with HDFC Bank.
The RBI chief said that the central bank will have to figure out how to attain its 5 per cent inflation target by March 2017.
Dr Rajan, whose three-year term comes to an end in early September, rubbished the array of media reports speculating about his second tenure.
"You will know when there is news," he told reporters today.
Here are five key highlights from Dr Rajan's press conference:
- The RBI may cut policy rates further should room for easing emerge
- Banks are not in a hurry to cut lending rates because of lack of demand
- The RBI may step in to supply dollars in case of extreme volatility, once FCNR (B) or NRI deposits start to mature from September
- The RBI's commitment to supply short-term funds into the banking system remains a work in progress
- The RBI kept its gross domestic product (GDP) projection for 2017-17 at 7.6 per cent