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Last RBI Policy With Raghuram Rajan Stamp Today? Announcement Expected

RBI Governor Raghuram Rajan will take a decision on cutting repo rate The buzz this time is around whether Dr Rajan's tenure will be extended This may be the last RBI policy with Dr Rajan's stamp

Last RBI Policy With Raghuram Rajan Stamp Today? Announcement Expected
  • Today may be the last time when an RBI governor will make a monetary policy statement. Under a new arrangement, rate-setting will be done by a six-member monetary policy committee and analysts say it could be applied from the next policy in August.
  • The bill to set up a monetary policy committee has been approved by parliament. A six-member monetary policy committee will set interest rates - three members will be nominated by the government and three by the RBI. The governor will have a casting vote.
  • The big interest in today's policy announcement is mostly about a second tenure for Dr Rajan, 53. Since 1992, every RBI governor has got a two-year extension on completion of his tenure, but it is not clear whether Dr Rajan will get one too.
  • Dr Rajan, who will speak at a press conference post the RBI's rate announcement this morning, is likely to be asked about a media report that said he would prefer to go back to the United States after his term expires in September.
  • He may also be asked about the multiple attacks on him by BJP lawmaker Subramanian Swamy, who wants him sacked for not cutting interest rates soon enough and has said that the RBI governor is "mentally not fully Indian" since he continues to renew the Green Card issued to him by the US government.
  • The Modi government has said it will decide on a second term for Dr Rajan only closer to the end of his tenure in September.
  • Meanwhile, Dr Rajan is expected to hold repo rate at 6.50 per cent, given the recent surge in retail inflation, which rose to 5.39 per cent in April from 4.83 per cent in March. RBI has a target to bring retail inflation down to 5 per cent by March 2017.
  • Economists expect inflation to inch up because of the recent rise in oil prices. The implementation of the 7th Pay Commission recommendations, which will lead to higher salaries for Central government employees and pensioners, is also expected to stoke price rise.
  • Dr Rajan is also expected to wait for the onset of monsoon rains before taking a decision on further rate cuts. Meteorologists have forecast above normal monsoon rains this year, after two successive years of drought. Good monsoons will boost rural consumption, but also fuel inflation.
  • The US Federal Reserve's interest rate action and the Brexit referendum, both slated for later this month, are two global factors that will influence Dr Rajan's decision, analysts say.