This Article is From Sep 20, 2013

Let's get our house in order, we have been given a warning: Raghuram Rajan

Let's get our house in order, we have been given a warning: Raghuram Rajan

Reserve Bank of India governor Raghuram Rajan, in an unexpected move, hiked the key repo rate by 0.25 per cent, causing the markets and the rupee to fall sharply.

The repo rate has been increased to 7.5 per cent, while the cash reserve ratio or the amount of money banks have to park with the RBI, has been kept unchanged at 4 per cent.

Here are the highlights of what Dr. Rajan said at a press conference after the policy:

  • Easing liquidity measures was warranted
  • Have to go back to making the repo rate the effective policy rate
  • Rate changes will be linked to economic conditions
  • Repo rate will be in accordance with the inflation rate
  • RBI will focus on both WPI inflation as well as CPI inflation
  • Events over the last few weeks have had an impact on our inflation forecast
  • Noises on Syria have been very comforting for the economy
  • Growth in Europe has been comforting as our exports are increasing
  • Further reduction in CRR daily maintenance level not contemplated
  • Liquidity conditions need not be as tight as they are currently
  • MSF cut is a significant reduction in the cost of funding
  • CRR issue is "peanuts" among others
  • Economic conditions are evolving, and there's news that kharif crop will help inflation come down
  • The RBI is anti-inflation
  • Do not intend to put in place capital controls
  • We will cross whatever bridges we have to cross in order to safeguard ourselves
  • Banks raised $1.4 billion in four days on the back of recent RBI measures
  • Don't see a situation in which the window for oil marketing companies will be permanently open
  • Postponement of tapering by the Fed has created the possibility of uncertainty down the line
  • If we stabilize, we would be better prepared when the Fed begins the tapering
  • Let's get our house in order before the Fed begins tapering, we have been given a warning
  • Don't want to link inflows or outflows directly to a repo rate hike
  • We must achieve the RBI target of bringing down WPI below 5 per cent
  • Both inflation and growth have been the RBI's priorities
  • As we build confidence in the economy and in the value of the rupee, the exchange rate will adjust appropriately
  • As markets stabilise, we will take action to reduce liquidity constraints
  • We are more comfortable now partly because there was panic in the market due to unfounded apprehensions
  • Banks should set rates appropriate to their cost of funding
  • Repo rate hike affects 0.5 per cent of the entire borrowing of the banking system
  • Central point of today's policy has been to bring down cost of borrowing for banks