Thursday, December 11, 2014

MPs put pressure on Raghuram Rajan to cut rates
Photo: Economy Lead
11 Dec, 2014:  RBI Governor Raghuram Rajan on Wednesday faced calls from members of Parliament to cut interest rates, adding to pressure on the celebrated economist, who has emphasised the central bank's independence since assuming office in September 2013 and has steadfastly refused to cut rates till the battle against inflation had been squarely won. 

Finance Minister Arun Jaitley said he agreed with the call for lower rates but added that the final decision was for the monetary authority, the RBI, to take.

"I am grateful that he (Saugata Ray, TMC MP) agreed with me, that now time has come with moderate inflation to bring down the rates. If you bring down the rates, people will start borrowing from banks to pay for their flats and houses. The EMIs will go down," Jaitley said. 

"I am sure that the authorities who are competent to deal with it are fully seized of this view notwithstanding the balancing exercise between inflation management and growth which they have to do," he added.

The FM has in the recent past often emphasised the need for a lower cost of capital but has always added the caveat that the final decision was up to RBI. Jaitley, who was replying to the debate on supplementary demand for grants in the Lok Sabha, was responding to comments by Ray and Congress leader Veerappa Moily charged that the government was insensitive to the problems of agriculturalists, industry and the manufacturing sector.

"In spite of (WPI) inflation easing to 2.82 per cent so far, interest rates have not been cut. There has been no spurt in manufacturing activity. I suppose, Mr Jaitley is helpless in the face of an economist governor of the Reserve Bank of India," Ray had said in his intervention. 

Moily also spoke in the same vein. "So far as interest rates are concerned, now it has become mature to reduce the interest rates. You agree that you have given statements in a number of places. Even the RBI governor agrees that it deserves it. Japan has done it and has reduced the interest rate. China has reduced the interest rate. Everybody has done it. But you refused to do that," he said.

RBI held interest rates steady in its mid-quarterly monetary policy review on December 2. While this outcome was widely expected by the market, some government officials had privately called for a cut in rates on the ground that wholesale inflation was below 3 per cent while retail inflation is below RBI's target of 6 per cent by January 2016. Further, GDP growth in the second quarter decelerated to 5.3 per cent from 5.7 per cent in the previous quarter.

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