Mumbai: Under pressure to cut interest rates to lower cost of capital, RBI Governor Raghuram Rajan on Friday said keeping inflation low is the key task for sustainable economic growth of the country.
RBI is scheduled to hold its next monetary policy review meeting on September 29 where Rajan is widely expected to announce this year’s fourth rate cut and expectations for the same have further increased after the US Federal Reserve on Thursday night decided on a status quo to its ultra-low rate regime.
Addressing industry leaders and bankers at an event on Friday, Rajan said limping global growth coupled with uncertainty about the US growth probably compelled the Federal Reserve to keep rates on hold.
On situation in India, he said the Consumer Price Index (CPI) based retail inflation at 3.6% currently was “largely due to base effect” excluding which it would be around 5.5%.
“The differential between WPI (Wholesale Price Index) and CPI is a source of problems. We have to be careful while pursuing growth and have to make it sustainable. The key is to keep inflation low not just today, but also in the future,” Rajan said.
On the US central bank’s decision to delay the much awaited rate hike, Rajan said, “We have noted the Fed decision of yesterday. I presume it reflects their desire to wait for more information before they take a final view.
“Clearly, thus far the markets seem to have reacted somewhat benignly certainly toward us. What we will have to do is continue what we have been doing which was anyways the intention regardless of the Fed decision.”
Speaking on a wide range of issues, Rajan said the central bank would put all banking licenses “on tap” going forward.
He however expressed disappointment over the use of Aadhaar being curbed and said it can help regulators contain over-borrowing.
The RBI Chief also expressed concern about rising NPAs and said the banks badly need to clean their books. He however welcomed the government’s move to bring in bankruptcy code to tackle rising NPAs.
He also frowned upon the banks’ practice of project evaluation being outsourced to outside consultants, saying it should be done in-house.
The RBI Governor also said the US Federal Reserve was impelled to hold near-zero rates again due to the emerging threat to the global economy as well as its concern over health of the American economy.
“If we look around the world today, it doesn’t present a pretty picture. Industrial countries are still struggling, with a few exceptions, to grow and the uncertainty about growth in the US as well the world is probably what impelled the Fed to stay on hold yesterday,” Rajan said.
In what could be termed as the most-awaited Fed meeting since the 2008 global credit crisis, the world’s most powerful central bank again postponed its intended decision to increase the rates from 0.00-.025% till the end of the year, giving a big relief to India and other developing countries.