The Reserve Bank of India (RBI) in its third bi-monthly monetary policy review for 2016 kept the repo rate unchanged, as was widely expected in the backdrop of retail inflation inching up to 5.6 per cent. Governor Raghuram Rajan reiterated that the central bank continues with its "accommodative stance" and is focused on the CPI inflation target of 5 per cent by March 2017. The next monetary policy review will be conducted by the monetary policy committee, he said.
This was Rajan's last policy review as governor and he said that he will fully utilise the remaining 28 days of his term.
On being asked what he would like to tell his critics, he said, "I don't have anything to say to them. Critics are there, but there are also people who send me messages in the plane from the back, anonymous notes saying, 'Thank you for what you are doing'. So you get both sides; the most important thing is, at the end of the day, you feel you have made a useful contribution. I've enjoyed every minute of it."
He also refused to project the government's acceptance of the inflation target of 4 per cent and a downtrend in NPAs as vindication of his policies, saying that the true impact of all he has done in his tenure will play out fully only in the next five-six years.
He seemed to rap the banks for not transmitting past rate cuts through their lending, first on the plea of low liquidity in the system and now on worries around the redemption of FCNR(B) deposits. "I have a suspicion that some new concern will crop up after the FCNR(B) redemptions," he said.
He said the approach of banks to recognise NPAs has been more commendable, with deputy governor S.S. Mundra adding that "there is a clear deceleration in the creation of new NPAs".
Rajan said it will be premature to comment on the impact of GST on inflation before the rate of tax is finalised.