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Rajan rules out rate cuts unless inflation tamed
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SME Times News Bureau | 30 Aug, 2016
Reserve Bank of Governor (RBI)
Raghuram Rajan on Monday ruled out any further interest rate cuts till
such time inflation came down to the comfort zone, and once again asked
commercial banks to lower the cost of credit to their customers.
"Inflation
projections are still at the upper limits of RBI's inflation
objective," Rajan said in his last Governor's Foreword to Annual Report
released here, referring to the government-mandated level of 4 per cent
annual retail inflation, plus or minus 2 percentage points.
"With
the Reserve Bank needing to balance savers' desire for positive real
interest rates with corporate investors' and retail borrowers' need for
low nominal borrowing rates, the room to cut policy rates can emerge
only if inflation is projected to fall further," he said.
In any
case, the task of taking a call on the interest rates is to be handed
over to a new Monetary Policy Committee, that will comprise three
representatives from the central bank -- including the RBI Governor as
its chair -- and three others to be chosen by the government.
Rajan
also said the willingness of commercial banks to cut lending rates was
muted, since the level of corporate investment had reduced the volume
and scope of new profitable loans for banks. The stressed assets of the
lenders was also preventing them from taking fresh exposures freely.
As
regards growth, he said, while the economy was showing signs of picking
up, it was still below the levels that the country was capable of.
"The
key weakness is in investment, with private corporate investment
subdued because of low capacity utilisation, and public investment slow
in rolling out in some sectors," said Rajan, who is scheduled to demit
office on September 4 and hand over the reins to Deputy Governor Urjit
Patel.
RBI projected the overall GVA (gross value added) growth at 7.6 per cent in 2016-17, up from 7.2 per cent last year.
GVA is the measure of goods and services produced in an economy minus the intermediate consumption.
"Service
sector activity is likely to receive a stimulus especially under the
category of public administration, defence and other services as public
expenditure on wages, salaries and pensions translates into disposable
incomes," RBI's annual report for 2015-16 said.
Rajan also called
for ushering new owners or managers for companies whose loans accounts
have gone sticky, to improve their operational efficiency. According to
him, where it is necessary, new management teams have to be brought in,
sometimes as owners, and where not possible, as managers.
"Creative
search for new management teams, including the possible use of public
sector firms or private sector agents, is necessary, as are
well-structured performance incentives such as bonuses for meeting cash
flow/ profit benchmarks and stock options. Of course, if the existing
promoter is capable and reliable, they should be retained," he said.
One
of the critical components of the medium term strategy in the financial
sector will be to strengthen the public sector banks in all aspects,
including governance, cost structure, and balance sheets, he said.
"We
will also focus on enhancing our communication with the broader public,
with a view to informing them on what they need to do to take best
advantage of financial opportunities, as well as protecting themselves,"
Rajan said.
Rajan said the grievance redressal mechanism in the
rural areas as well as to the weaker sections of the society will be
strengthened.
He said the RBI will work to enhance grievance
redressal procedures, both within the financial institutions, and if the
customer is still unsatisfied, subsequently through the RBI's ombudsman
scheme.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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