Around Election Time Cash Increases In System, Says Raghuram Rajan

Around Election Time Cash Increases In System, Says Raghuram Rajan
Reserve Bank Governor Raghuram Rajan on Tuesday cut the benchmark repo rate by 25 basis points as expected. Dr Rajan’s first rate cut in over six months sent the repo rate to over five-year low of 6.50 per cent.

Dr Rajan is addressing the media on RBI’s policy stance. Here are the highlights of what the RBI chief said.

– New marginal cost-based lending rate to help lower rates for borrowers
– Policy stance to remain accommodative
– The focus is now on transmission of RBI rate cuts
– Have cut rates by 150 bps since the easing cycle began
– Happy with the progress on cleaning up of bad assets
– Monsoon, inflation and transmission of rates will determine future monetary policy stance
– RBI to release guidelines for on-tap licensing for banks
– Expect borrowing rate to get cheaper
– Borrowing will continue to be cheaper
– To look for room from good monsoon
– Impact of pay panel hike will be much less
– During election time cash increases in the system, not just in the election states but also in neighbouring states
– It’s Rs 50,000 crore to Rs 60,000 crore more than we estimated for this time of the year
– Deposit growth is lower than credit growth
– Seeing reasonable deposit growth at 9-9.5 per cent reasonable
– Expect consumer price inflation at 5 per cent by March 2017
– Important to investigate mistakes in lending
– Cyber security is an imp risk
– Rural inflation higher than urban and demand is still very muted
– Rate cut in line with policy direction