Rajan expects growth to pick up in second half

Our Bureau Updated - November 14, 2013 at 03:43 PM.

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Despite weak industrial growth data, the RBI Governor, Raghuram Rajan, was hopeful of stronger growth numbers in the second half of this fiscal.

“The earlier core industry growth numbers suggested an incipient recovery, and the IIP numbers have disappointed a little… Nevertheless, I am still hopeful that the good monsoon and associated pick up in consumption, the very healthy exports, and strong growth in the power sector should lead to stronger growth numbers,” said Rajan in a hurriedly called press conference on Wednesday.

Also, the new September CPI index coming in double-digits at 10.10 per cent has got the RBI worried. Rajan said the food inflation is still worryingly high, and the effects of the harvest are still awaited.

The momentum for core inflation, which declined to 8.1 per cent from 8.5 per cent in September, is also on the decline,” Rajan said.

Reiterating that the RBI is concerned about the weak economy as well as high inflation, the RBI chief said that the weak economy, increase in food supply, and recent policy rate hikes will provide a disinflationary impetus over time.

“We will watch the incoming data carefully, especially looking for the effects of the harvest on food prices as well as the second round effects of fuel price increases and exchange rate depreciation, before we make further decisions on interest rates,” he added.

OMOs for Rs 8,000 cr

Further, conscious of the need to keep the system adequately supplied with liquidity, Rajan said RBI will ensure productive sectors are well supplied with credit.

“While borrowing from the MSF (marginal standing facility) has come down substantially after the RBI extended the term repo window, market interest rates suggest some liquidity tightness. To alleviate this tightness, we propose to conduct OMOs. On next Monday (November 18), we will undertake an OMO for Rs. 8,000 crore,” Rajan announced.

At the end, the RBI Governor said there is no fundamental reason for volatility in the value of the rupee.

“We are left with fear about what others will fear and do to explain what is going on. At such times, it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that,” saying this, Rajan closed his comments.

beena.parmar@thehindu.co.in

Published on November 14, 2013 10:02