Reserve Bank of India Governor Raghuram Rajan on Sunday said he will be more guided by the pattern of inflation in the domestic economy in deciding on further monetary easing in the coming days.

Rajan’s remarks are significant as the RBI will go for a monetary policy review on April 7.

The recent US Fed move to drop the word “patient” from its monetary policy statement is not going to impinge on the next rate cut decision, he indicated.

“My reading of the US Fed statement is they make take a little longer. But I don’t think it will impinge. That (US interest rate hike) can’t be the primary factor. The central factor in our discussion is not what the US Fed does. The primary factor in allowing for greater monetary easing will be the pattern of inflation and how it proceeds,” Rajan said at a joint press conference with Finance Minister Arun Jaitley here, after a meeting of the RBI board of directors for a customary post-Budget interaction.

CPI-based inflation The RBI Governor said a lot of what needs to be done had to do with the internal environment even while reiterating that external environment was a constraint.

With the consumer price index (CPI)-based inflation hitting a four-month high in February, there are doubts as to whether Rajan will go for another policy rate cut on April 7.

The RBI is now guided by the movements of CPI and not the wholesale price index, which hit a record low of (-) 2.06 per cent in February.

Food prices Rajan also said that the RBI would carefully watch the impact of the unseasonal rains and hailstorm on the price situation. “As far as rains go, there is no direct one-to-one correlation between rains and prices. It depends on what crops (are impacted). What it means is that we have to be more careful in food management and the government has repeatedly said it is looking at food prices and is engaged actively in food management. It needs greater vigilance,” he added.

At today’s interaction between Jaitley and the RBI Board, the discussions revolved around the recent monetary policy agreement between the Finance Ministry and the central bank, the crucial aspect of infrastructure financing and the need to improve the bond market, as well as the black money Bill.

No disconnect: Jaitley On the issue of public debt management agency, Jaitley asserted at the press conference that there was no “disconnect” between the Finance Ministry and the RBI on this front.

Asked if the Ministry plans to cut small savings rates, Jaitley said he cannot give a response to this question and assured that all aspects will be considered before taking a view on this.

Incidentally, despite the RBI making two rounds of policy rate cuts this year, several banks have not dropped their lending rates.

The reason the banks cite is that the deposit rates in the system are not coming down. For that to happen, interest rates on small savings should be lowered by the Finance Ministry, they argue.

srivats.kr@thehindu.co.in

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