Zee Media Bureau
New Delhi: The RBI Governor on Tuesday said the central bank is looking for developments on disinflationary process and the upcoming Budget.
Talking to media after unveiling its bi-monthly monetary policy review, he said that the further actions will be driven by data.
"Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the RBI to await them and maintain the current interest rate stance," Raghuram Rajan said.
The outlook for growth has improved modestly on the back of disinflation, real income gains from decline in oil prices, easier financing conditions and some progress on stalled projects, he added.
These conditions should augur well for a reinvigoration of private consumption demand, but the overall impact on growth could be partly offset by the weaker global growth outlook and short-run fiscal drag due to likely compression in plan expenditure in order to meet consolidation targets set for the year.
Accordingly, the baseline projection for growth using the old GDP base has been retained at 5.5 percent for 2014-15.
The upside risks to inflation stem from the unlikely possibility of significant fiscal slippage, uncertainty on the spatial and temporal distribution of the monsoon during 2015 as also the low probability but highly influential risks of reversal of international crude prices due to geo-political events.
"Heightened volatility in global financial markets, including through the exchange rate channel, also constitute a significant risk to the inflation assessment. Looking ahead, inflation is likely to be around the target level of 6 percent by January next.
For 2015-16, projections are inherently contingent upon the outlook for the south-west monsoon and the balance of risks around the global outlook.
Domestically, conditions for growth are slowly improving with easing input cost pressures, supportive monetary conditions and recent measures relating to project approvals, land acquisition, mining, and infrastructure.
Talking about the path of inflation in 2015-16, Rajan said: "The Reserve Bank will keenly monitor the revision in CPI, which will rebase the index to 2012 and incorporate a more representative consumption basket along with methodological improvements".
Despite fiscal deficit touching 99 percent by November, the Governor said he was confident that the government will not miss the budgeted 4.1 percent target.
On the surprise 0.25 percent rate cut on January 15, he said the decision was led by falling inflationary expectations and data on weak commodity prices and muted rural wage growth.
"Having committed in public statements to initiate a change in the monetary policy stance as soon as incoming data permitted, the Reserve Bank cut the policy rate on January 15," he added.
Referring to economic growth, RBI said that though revision in the base year for GDP and calculation methods will mean some revision in GDP growth numbers for 2014-15 as well as in the forecasts, growth expectations should be tempered.
"Domestic activity is likely to have remained subdued in Q3 of 2014-15, mainly reflecting the shortfall in the kharif harvest relative to a year ago but agricultural growth is likely to pick up in Q4 with the late improvement in the north-east monsoon and in rabi sowing.
"Nevertheless, growth expectations should be tempered as lead indicators such as tractor and motorcycle sales and slowing rural wage growth all point to subdued rural demand," RBI's said.
However, it noted that there is improvement in business confidence as visible from a pick-up in new investment intentions, especially in transportation, power and manufacturing.
RBI estimated the current account deficit (CAD) for 2014- 15 at 1.3 percent of the GDP, significantly lower than the earlier projection.
"The CAD has been comfortably financed by net capital inflows, mainly in the form of buoyant portfolio flows but also supported by foreign direct investment inflows and external commercial borrowings. Accordingly, there was accretion to India's foreign exchange reserves to the tune of USD 6.8 billion in Q3," RBI said.
On payments banks and small finance banks as differentiated banks, RBI said it has received 72 applications for small finance banks and 41 applications for payments banks up to the deadline for submission yesterday.
"This number excludes applications that might have been received at other venues," it added.
Two External Advisory Committees (EACs) will evaluate the applications received and thereafter make their recommendations to the RBI.
The EACs for small finance banks and payments banks will be chaired by Usha Thorat, former RBI Deputy Governor and Nachiket Mor, Director, Central Board of the RBI, respectively.
The RBI also increased the eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) to USD 250,000 per person per year from the earlier USD 125,000.
On Foreign Portfolio Investors (FPIs), RBI said it has been decided in consultations with the government that all future investments by them in the debt market will be required to be made with a minimum residual maturity of three years.
FPIs are currently permitted to invest in government securities with a minimum residual maturity of three years. However, there was no such condition for their investments in corporate bonds.
The Reserve Bank of India (RBI) today kept the short-term indicative policy rate (repo rate) unchanged at 7.75 percent but slashed statutory liquidity ratio (SLR) by 0.5 percent to 21.5 percent at its sixth bi-monthly monetary policy review.
It has also decided to keep the cash reserve ratio (CRR), the portion of deposits which the banks are required to have in cash with the central bank, unchanged at 4 percent.
The RBI had announced a surprise rate cut of 25 basis points last month after maintaining a hawkish monetary stance for 20 months.
While lowering the policy repo rate to 7.75 percent from 8 percent, RBI had said on January 15 that further rate cuts would depend on inflationary expectations and improvement in the fiscal situation.
