Rate cuts only if banks pass it on to cus­tomers: Ra­jan

The Pak Banker - - COMPANIES/BOSS -

Af­ter opt­ing for sta­tus quo in pol­icy rates, Re­serve Bank Gover­nor Raghu­ram Ra­jan said any more cut will de­pend on fur­ther trans­mis­sion of pre­vi­ous rate cuts by banks, soft­en­ing in in­fla­tion and progress of mon­soon.

"We are look­ing whether the re­cent in­crease in in­fla­tion is tem­po­rary and whether the mon­soon will con­tinue to be near nor­mal. The oil price de­vel­op­ment is very ben­e­fi­cial and we will await greater trans­mis­sion of our past ac­tions by banks while we look and mon­i­tor de­vel­op­ments for emerg­ing room," Dr. Ra­jan told re­porters dur­ing the cus­tom­ary post-pol­icy in­ter­ac­tion with jour­nal­ists here this morn­ing.

In the pol­icy state­ment, Dr. Ra­jan said the RBI con­tin­ues to have an ac­com­moda­tive stance, which was adopted in Jan­uary this year with a sur­prise rate cut. De­spite favourable base ef­fect, head­line in­fla­tion surged to nine-month high of 5.40 per cent in June which re­sulted in ex­pec­ta­tions, es­pe­cially at in­di­vid­ual level, get­ting el­e­vated, RBI said.

"In­fla­tion­ary ex­pec­ta­tions do get al­tered con­sid­er­ably by cer­tain salient items such as food, milk and veg­eta­bles. Given that, yes, it (el­e­vated ex­pec­ta­tions) is a con­cern but one should keep that in per­spec­tive," Ra­jan said.

Speak­ing on the oc­cas­sion, RBI Deputy Gover­nor Uri­jit Pa­tel said, at the mo­ment, the risks on in­fla­tion are bal­anced but ex­uded con­fi­dence that the cen­tral bank will be able to meet the Jan­uary, 2016 tar­get of 6 per cent with in­fla­tion com­ing be­low it.

How­ever, the pol­icy doc­u­ment pegged the Jan­uary price in­dex at 5.8 per cent, which is 20 ba­sis points be­low the April and June es­ti­mate.

With whole­sale price in­fla­tion con­tin­u­ing to tread in the neg­a­tive zone for the eighth con­sec­u­tive month, and calls for rate cuts thereof get­ting shriller, Dr. Ra­jan said the RBI prefers to for­mu­late its poli­cies based on CPI which gives a bet­ter pic­ture of the pinch at the in­di­vid­ual level.

"It's con­ve­nient to look at the whole price in­dex, then you can do all your work on in­fla­tion man­age­ment based on fac­tors from out­side on which we have no con­trol.

"But if we re­ally want to man­age in­fla­tion, we have to look at the sum to­tal of in­fla­tion, es­pe­cially in­fla­tion that con­cerns con­sumers, which de­ter­mines house­hold sav­ings, wage pres­sures," Dr. Ra­jan said.

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