RBI chief cautious, sees brighter future
The good news for India Inc and all borrowers is that there will be no interest rate hike or further policy-tightening measures if inflation stays on its southward journey along the intended “glide path” laid out in the Urjit Patel committee report.
RBI governor Raghuram Rajan maintained the widely-expected status quo in his first bi-monthly monetary policy statement of 2014-15 on Tuesday, and said if disinflation sustains its “glide path”, the real growth rate is projected to pick up from a little below five per cent last fiscal to around 5-6 per cent in 2014-15, with a downside risk to the central estimate of 5.5 per cent. Industrial revival, he noted, remains a sticky issue and the outlook for agriculture is contingent on the timely arrival and spread of the monsoon.
But he also sees a bright growth outlook as domestic supply bottlenecks ease and there is progress in implementing the stalled projects that have been cleared and stronger than anticipated export growth. However, he always presents the other side, cautioning that retail inflation may be subject to both domestic, geo-political and electoral risks.
On the poll issue, he said if the new government is not stable, the markets will be disappointed. He said we must be prepared for any eventuality, but if the country’s balance sheet is good, it will be in better shape for any eventuality. Consumer protection was one of the credit policy’s main highlights: as the RBI proposes to frame comprehensive consumer protection regulations based on domestic experience and global best practices.
In a move that could help retail borrowers, he suggested to the banks that they offer their borrowers the possibility of pre-paying floating rate term loans without penalty, and also not levy penalty on customers for non-maintenance of minimum balances in ordinary savings bank accounts.
He said that instead of levying penalty, they should instead limit the services available to such borrowers to those available to basic savings bank deposit accounts and restore the services when the balance improves to the minimum required level. Banks should also limit the liability of customers in electronic banking transactions in cases where they are not able to prove customer negligence. Dr Rajan’s emphasis on the need to attract foreign portfolio flows was underlined by his assurance that the RBI was working with the SEBI on modalities of letting foreign portfolio investors hedge their currency risks through exchange traded currency futures, simplifying KYC norms and several other measures.