Second Quarter Review of Monetary Policy 2013-14 : Statement by Dr. Raghuram G. Rajan, Governor, Reserve Bank of India - ربی - Reserve Bank of India
Second Quarter Review of Monetary Policy 2013-14 : Statement by Dr. Raghuram G. Rajan, Governor, Reserve Bank of India
"Good Morning and welcome to the Reserve Bank. Today, continuing the process begun in September, we have announced the following policy measures:
Assessment Our policy decisions are based on a detailed assessment of the global and domestic macroeconomic situation. The outlook for global growth has improved modestly and the prospect of delay in the taper of the Federal Reserve’s bond purchases has brought calm to financial markets. Domestically, while industrial activity has weakened, strengthening export growth, signs of revival in some services along with the expected pick-up in agriculture could increase the real GDP growth from 4.4 per cent in Q1 to a central estimate of 5.0 per cent for the year as a whole. The revival of large stalled projects and the pipeline cleared by the Cabinet Committee on Investment may buoy investment and overall activity towards the close of the year. On inflation, both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting anappropriate policy response. We have calibrated liquidity management to the system’s requirements. We are providing liquidity through overnight LAF repos, through export credit refinance and through 7-day and 14-day term repos. We have also given greater flexibility in managing reserve requirements. Going forward, however, the more durable strategy for mitigating mismatches between the supply of, and demand for, funds is for banks to step up efforts to mobilise deposits. On the external sector, a perceptible narrowing of the trade deficit coupled with policy interventions have brought some calm to the foreign exchange market, but normalcy will be restored only when the demand for dollars from public sector oil marketing companies is fully returned to the market. Policy Stance and Rationale We began a calibrated change in the exceptional liquidity measures since September. As steps to contain the current account deficit started taking effect in an improving external environment and as volatility in the foreign exchange market ebbed, it became possible for us to unwind the exceptional liquidity tightening measures. With the reduction of the MSF rate and the increase in the repo rate in this review, the process of re-aligning the interest rate corridor to normal monetary policy operations is now complete. However, it is important to break the spiral of rising price pressures in order to curb the erosion of financial saving and strengthen the foundations of growth. It is in this context that the LAF repo rate has been increased by 25 basis points. Curbing mounting inflationary pressures and managing inflation expectations will help strengthen the environment for growth by fostering macroeconomic and financial stability. The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics. Developmental and Regulatory Policies We plan to build the Reserve Bank’s developmental measures over the next few quarters on five pillars. These are:
Action on the monetary policy framework will follow the submission of the Dr. Urjit Patel Committee report. A number of measures to strengthen bank structures and financial markets have already been announced, and more will follow as they are worked out. The strategy to expand financial inclusion will be informed by the Dr. Nachiket Mor Committee report, though significant efforts to explore the use of technology are already under way. I invite you all to go through Part B of the Policy Statement which lays out developmental and regulatory initiatives. I will only list a few important ones. We are discussing other measures and the fact that I do not mention them does not mean that they are not on the table, only that more work is needed to get them to the point where they can be announced. In formulating these measures, we have listened to concerns that have been expressed to us. For instance, a number of banks have expressed concerns about the difficulty of settling electronic funds transfers when the markets have closed. Keeping this in mind, we have revised the timing of MSF operations. With effect from November 5, 2013 they will be conducted between 7.00 pm and 7.30 pm instead of between 4.45 pm and 5.15 pm. I believe this new timing will help the banks greatly in their reserve management and help free up liquidity for the economy. Turning to other measures
I thank you for your attention and on behalf of the Reserve Bank, my best wishes to everyone for a Happy Diwali." Alpana Killawala Press Release : 2013-2014/872 |