Rate cuts: Rajan says watching monsoon impact on inflation

Mumbai :Amid persistent rate cut calls from the government and the industry, RBI Governor Raghuram Rajan today said the central bank is keeping a watch on monsoon and global factors to assess their impact on inflation.

At the same time, Rajan also appeared critical of banks for not passing on entire benefit of RBI’s 0.75 per cent rate cut so far in 2015, and said markets are better reflecting the lowering of the central bank’s policy rates than the lenders.

However, the government and the industry continue to pitch for further rate cuts, which RBI has linked to trends in inflation and the global factors.

“I am just going to repeat what we said in the monetary policy statement. We will wait for developments on the inflation front, we are waiting for monsoon out-turn, and we are waiting for developments on the external front.

“On all these, since the last monetary policy (on August 4), there has been more information of course, and we will take that into account accordingly,” Rajan said here at the SBI Banking and Economics Conclave.

Making a case for rate cut, Finance Minister Arun Jaitley earlier this week had said that RBI will take note of the declining inflation and take a decision accordingly.

“Inflation is under control, and hopefully the impact of inflation being under control is a factor which, I am sure, the central bank with all its wisdom will take note of,” Jaitley had said after inaugurating the same Conclave.

Inflation, both retail and wholesale, are at record lows. While retail inflation stood at 3.78 per cent, WPI came in at (-)4.05 per cent in July.

Rajan said there has been is a pick up in the economy and hoped that the rural economy would also see an uptrend if monsoon improves and the sowing is good.

While RBI has cut its rates thrice so far in 2015, each time by 0.25 per cent, it retained the rates during the last policy meet amid a clamour for further rate cuts.

The central bank, which is scheduled to hold its next rate review meet on September 29, has linked further monetary policy easing to further softening of inflation. Out of the three rate cuts so far in 2015, two have taken place outside the scheduled bi-monthly monetary policy review.

RBI has kept the option open for another rate cut outside the scheduled review if inflation remains subdued and global factors are conducive for lowering of its benchmark rate.