Reserve Bank of India Governor Raghuram Rajan signalled that the bad loans of banks were manageable and joined the startup party while keeping interest rates unchanged as expected in the monetary policy , leaving investors guessing about the next reduction as he raised the inflation forecast. Ahead of the Budget, he said India's status as a “beacon of stability“ is conditional on RBI and the government remaining conservative on economic management.
In line with Prime Minister Narendra Modi's initiative to create a more conducive ecosystem for startups, RBI pledged to ease norms on investing and repatriation of funds by investors.That's a turnaround from years of central bank aversion to structured transactions that were seen as a way of siphoning off money . The central bank left reserve requirements and liquidity management unchanged but promised to ensure that cash in the banking system remains “plentiful“ amid bond traders complaining of a squeeze that's keeping rates high. This was in line with expectations, with most experts suggesting that Rajan will wait for Finance Minister Arun Jaitley's month-end Budget before deciding on RBI's course of action.
The repo rate, at which RBI lends to banks, was kept at 6.75%, and the reverse repo rate, which it pays banks for deposits, was kept at 5.75%. The cash reserve requirement, the proportion of deposits that banks keep as cash with RBI, was maintained at 4%.
RBI, which targets inflation as measured by the consumer price index at 5% by fiscal 2017, raised its forecast for inflation in March that year to 5% from 4.8%. This is without factoring in the effects of a rise in consumer spending once the Seventh Central Pay Commission recommendations are implemented.
Investors showed their disappointment, with the Sensex falling 1.15% to 24,539 points, and the yields on benchmark government bonds surging 6 basis points, or 0.80%, pushing prices down to 7.72%. A basis point is 0.01 percentage point.
The rupee, the worst performer of the year after remaining strong in 2015, weakened 14 paise, or 0.21%, to close at 67.98 to a dollar.
Although he did cut rates last year, Rajan's conservative stance has largely disappointed industry , which has been struggling with debt. A borrowing binge before 2012 has left many companies unviable. And the RBI governor hasn't shrunk from reminding promoters about this fairly often.
Rajan has been warning of a loss of credibility built over three years if the government shifts track from fiscal prudence. FM Jaitley will have to decide whether to plump more strongly for capital spending at the risk of knocking back the fiscal deficit target once again in the Budget.
Rajan warned that financial market volatility could be around the corner as the January whipsaw in currencies and stocks showed after remaining calm in December despite the US Federal Reserve's baby steps to normalcy. China and commodity prices remain risk factors.
RBI kept its economic growth fore cast for the current fiscal at 7.4% with a downward bias. It warned of head winds in the next fiscal due to poor private investment, which is being weighed down by high debt. Fisca 2017 economic expansion could be 7.6%, it said. The next monetary policy review will be on April 5.
In line with Prime Minister Narendra Modi's initiative to create a more conducive ecosystem for startups, RBI pledged to ease norms on investing and repatriation of funds by investors.That's a turnaround from years of central bank aversion to structured transactions that were seen as a way of siphoning off money . The central bank left reserve requirements and liquidity management unchanged but promised to ensure that cash in the banking system remains “plentiful“ amid bond traders complaining of a squeeze that's keeping rates high. This was in line with expectations, with most experts suggesting that Rajan will wait for Finance Minister Arun Jaitley's month-end Budget before deciding on RBI's course of action.
The repo rate, at which RBI lends to banks, was kept at 6.75%, and the reverse repo rate, which it pays banks for deposits, was kept at 5.75%. The cash reserve requirement, the proportion of deposits that banks keep as cash with RBI, was maintained at 4%.
RBI, which targets inflation as measured by the consumer price index at 5% by fiscal 2017, raised its forecast for inflation in March that year to 5% from 4.8%. This is without factoring in the effects of a rise in consumer spending once the Seventh Central Pay Commission recommendations are implemented.
Investors showed their disappointment, with the Sensex falling 1.15% to 24,539 points, and the yields on benchmark government bonds surging 6 basis points, or 0.80%, pushing prices down to 7.72%. A basis point is 0.01 percentage point.
The rupee, the worst performer of the year after remaining strong in 2015, weakened 14 paise, or 0.21%, to close at 67.98 to a dollar.
Although he did cut rates last year, Rajan's conservative stance has largely disappointed industry , which has been struggling with debt. A borrowing binge before 2012 has left many companies unviable. And the RBI governor hasn't shrunk from reminding promoters about this fairly often.
Rajan has been warning of a loss of credibility built over three years if the government shifts track from fiscal prudence. FM Jaitley will have to decide whether to plump more strongly for capital spending at the risk of knocking back the fiscal deficit target once again in the Budget.
Rajan warned that financial market volatility could be around the corner as the January whipsaw in currencies and stocks showed after remaining calm in December despite the US Federal Reserve's baby steps to normalcy. China and commodity prices remain risk factors.
RBI kept its economic growth fore cast for the current fiscal at 7.4% with a downward bias. It warned of head winds in the next fiscal due to poor private investment, which is being weighed down by high debt. Fisca 2017 economic expansion could be 7.6%, it said. The next monetary policy review will be on April 5.
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