RBI discussing new monetary policy with finance ministry

New Delhi, Aug 10 :

Reserve Bank Governor Raghuram Rajan Sunday said RBI has started discussions with the finance ministry on the proposed monetary policy framework.

“We will be discussing monetary policy framework through the course of the year. Just now we have started a preliminary discussion and the framework will be developed along with the finance ministry,” Rajan told reporters here after a meeting of the RBI board.
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A committee headed by RBI deputy governor Urjit Patel was appointed to revise and strengthen the monetary policy framework. It had recommended that retail inflation or consumer price index (CPI) should be used as the anchor for a inflation targeting framework.

Finance Minister Arun Jaitley, who attended the board meeting, said the RBI would take a decision on its six percent inflation target by March 2016.

“It is an issue which the Reserve Bank decides and I am sure they factor in various circumstances,” Jaitley said.

The RBI in its policy review last Tuesday kept its policy rate unchanged for the third time in a row at 8 percent, and set a target to bring down retail inflation to 6 percent by March 2016.

Responding to a query on RBI’s inflation-control targets, Rajan said: “We think that at the current interest rate, we are on course to meet those targets.”

The RBI governor also said that at this juncture reduction in banks’ statutory liquidity ratio (SLR) will not be helpful in expanding credit growth to private industry because demand for credit is yet to pick up.

“Credit growth is still to pick up in a strong way.Part of the reason why credit growth is not picking up is because industry is also borrowing from market,” Rajan said.


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