While leaving key monetary policy rates untouched in his bi-monthly monetary policy statement, RBI governor Raghuram Rajan held out hope that banks could reduce interest rates by September or October as the 75 basis points front-loaded rate cuts he announced since January will take effect after a while — it is called the lag effect.
The announcement of the government that it will infuse capital into the public sector banks will also help the banks. So personal and home loan borrowers may have to wait a little longer for some relief in their EMI payments. He also mentioned continuing the accommodative policy stance, hinting at the possibility of a rate cut in the not too distant future, maybe even in September, as some analysts feel. In fact, Dr Rajan seems to have gone out of his way to assure a more benign monetary policy by saying that whilst waiting for the front-loaded rate cuts to be transmitted, the RBI would monitor developments for emerging room for more accommodation.
A pleasant surprise in the policy was his expectation that inflation for January-March 2016 would be 0.2 per cent and revised the target to six per cent. What was interesting was his acknowledgement of the government’s efforts to control food inflation shocks by increasing the acreage under pulses and oilseeds and a pro-active stance in supply management to contain shocks in food prices, especially those of vegetables. The Centre has also tried to clear stalled projects. However, he cautioned that investment from both the private sector and the Centre was subdued.
