Mumbai :The current regime of low inflation is likely to sustain for a longer period, Reserve Bank Deputy Governor R Gandhi today said.
“Our experience of inflation has been in high single-digit to early teens and hence, inflationary expectations are very well entrenched. Though we had experience of low inflation for some time, we could not sustain it,” Gandhi said at the MR Pai Memorial Lecture here this evening.
“But we are now experiencing low levels of inflation, and it is amply clear that this time around, we will be able to sustain it for years to come.”
Consumer-price based inflation has been on a downward trend for the past five months while WPI has been declining for the last nine months. In July, WPI was at -4.05 per cent while CPI came in much lower-than-expected at 3.78 per cent.
On deposit insurance, Gandhi said there has been a persistent demand from stakeholders and public representatives in the recent past for a hike in deposit insurance cover from the current level of Rs 1 lakh.
However, he was quick to note that increasing the deposit insurance cover may lead to two major issues—“moral hazard and risk-based premium”.
Gandhi said the committee on ‘differential premium system for banks’, constituted by Deposit Insurance and Credit Guarantee Corporation (DICGC), submitted its report yesterday.
“We hope that introduction of risk-based premium system will make ground for considering raising insurance cover from the present ceiling of Rs 1 lakh.”
The Deputy Governor added that RBI is in the process of finalising names of entities to grant small finance banks.
“We are in the final stages of determining who all can be granted small finance bank licences,” he said, adding that in three-four weeks, the names will be finalised. As many as 72 entities/persons have applied for these licences.
PTI