Money & Banking

RBI has taken a cautious stand warranted by circumstances: Rangarajan

K.R. Srivats New Delhi | Updated on March 12, 2018 Published on October 30, 2012

C. Rangarajan, Chairman, PM’s Economic Advisory Council

The Prime Minister's Economic Advisory Council (PMEAC) has welcomed the Reserve Bank of  India's monetary policy announcements, stating that the central bank has taken a cautious stand and that was warranted by the current circumstances.

“The Policy announcements are on expected lines,” C. Rangarajan, PMEAC Chairman, told Business Line here.

He said the RBI’s move to keep policy rates untouched would have been prompted by headline inflation remaining at a high level and non-food manufacturing inflation being sticky and not showing any signs of decline. 

At the same time, Rangarajan said a reduction in the cash reserve ratio (CRR) must be taken as a signal as it puts more liquidity in the hands of the banks and also improves their profitability. They have adopted a less open route of reduction in CRR.

“Perhaps for a change in the policy rate, RBI is waiting for an opportune moment when there could be a sustained decrease in interest rates. As of now, they have indicated that easing could start only from January next year,” he said.

Rangarajan highlighted that it is not as though the inflationary situation has not eased. It has come down from the very high levels that one saw in 2010, he said.

He said it is the assessment of the RBI that some improvement in liquidity would do good. 

A small reduction in CRR would improve liquidity, Rangarajan said, adding that there was some reference in the RBI Governor's speech of liquidity having tightened in October.

On economic growth projections, Rangarajan said the PMEAC suggested a growth rate of 6.5 per cent for the current fiscal would not be feasible in light of the recent developments. 

"I believe the growth rate this fiscal would be 6 per cent.”

The RBI on Tuesday scaled down its growth forecast for the current fiscal to 5.8 per cent from 6.5 per cent projected earlier.

On the issue of a reduction in policy rates, Rangarajan said a reduction in the repo rate itself does not do much. 

"A policy rate cut only gives announcement effect. It has to be accompanied by a CRR cut or open market operations to make it effective," Rangarajan said.

[email protected]thehindu.co.in

Published on October 30, 2012
null
This article is closed for comments.
Please Email the Editor