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RBI Governor Raghuram Rajan Upbeat on 7th Pay Panel Hikes, Start Ups

RBI Governor Raghuram Rajan has kept policy rate on hold at 6.75 percent on Tuesday, purportedly awaiting the government’s move in the direction when it unveils the Budget 2016-17 later this month.

  • Monetary and Liquidity Measures remained the same as RBI has decided to:

    * keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75 per cent;
    * keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL);
    * continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
    * continue with daily variable rate repos and reverse repos to smooth liquidity.

So, the reverse repo rate under the LAF will remain unchanged at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75 per cent.

On other fronts, RBI Governor Raghuram Rajan seemed happy over the growth indicators emerging in the country’s economy, despite a declining world economy amid low oil prices. He said:”World trade has remained subdued, held down by anaemic demand, new lows in commodity prices and currency realignments.” Pointing out certain improving labour market trends in Europe and the US, he said, “Manufacturing activity is sluggish, however, reflecting retrenchment in oil and gas drilling activity and declining exports. In the Euro area, improving labour market and financing conditions are supporting consumer spending and business investment.”

Depicting a gloomy picture of Japan, he said the combination of exceptional monetary accommodation and fiscal stimulus has failed to spur sustainable domestic demand so far. In China, according to him, the growth in Q4 of 2015 was the slowest since 2009, partly owing to plunged oil prospects where China had invested hugely.

However, on the domestic front, economic activity lost momentum in Q3 of 2015-16, pulled down by slackening agricultural and industrial growth. The north-east monsoon season ended in December with a deficiency of 23 per cent relative to the long period average (LPA). By end-January, rabi sowing was mildly deficient relative to a year ago, as well as to the quinquennial average in respect of all crops, except coarse cereals, he said.

The RBI governor was assertive that the rural incomes will continue to be supported by allied activities such as dairy and horticulture, which now contribute as much to GDP as food grains.

Hoping for a decline in inflation, he said “With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6 per cent should be met. Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5 per cent by the end of fiscal 2016-17.”

On Start Ups, he echoed similar optimism as the government when he said, “In keeping with the Government’s Start-up India initiative, the Reserve Bank will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups.”

Not elaboraating further, he mentioned about the measures to create a friendly framework to raise funding from foreign venture capital on “differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, facilities for escrow arrangements and simplification of documentation and reporting procedures.”

He said a detailed statement is being issued separately.

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