New Delhi: RBI Governor Raghuram Rajan on Friday said the central bank has not shut its door on rate cut and will take a view depending upon the evolving situation with regard to monsoon and external environment.
Observing that he had cut benchmark lending rate by 0.25% earlier this week despite several risks, the RBI chief said that future policy action would be contingent on domestic and global factors.
In the monetary policy, Rajan said, “We moved a little forward by saying we are going to cut rates despite these risks…based on how these risks evolve we will take a view. It’s not a shut door, it’s a contingent statement”.
Yielding to demands of Finance Minister Arun Jaitley and India Inc, Rajan in the second bi-monthly monetary policy review on June 2 “front loaded” the repo rate cut despite worries of below normal monsoon and its impact on prices.
“Growth is very weak, but we also have inflation mandate that we have to respect and we are trying our best in doing as much as for growth given the inflation mandate,” Rajan said.
He said the three big uncertainties clouding the economic prospects are monsoon, oil prices and external environment.
“If you have a weak monsoon and if you have the appropriate policy reactions and that is something we have to wait and see. We have included some of the estimates we believe, a reasonable estimate. But if the action is very vigorous or the monsoon is much stronger than the forecast that will obviously create more policy room for us to act,” he said.
Noting that oil prices are a big factor, Rajan said: “If they go back down, because there is a sense that there is excess supply in the market, it would potentially give us more policy room, and similarly with the external environment”.
On US Federal Reserve cutting interest rates, Rajan said as far as US goes first quarter has not been that good.
“Once again there is call for postponing monetary easing… I hope the US bite the bullet and come out of it… I am not too worried that market will collapse (following Fed rate cut). It will affect us as much as other markets are affected,” he said.
Rajan said banks are slowly transmitting the benefits of interest rate cuts by RBI and over time transmission will increase as competition from the market increases.
“Banks have started playing part. Banks have started cutting rate. Overall transmission will increase with market competition. Banks will have to cut rate,” he said.