New Delhi: Finance ministry on Wednesday described RBI move to keep lending rates unchanged as bold and brilliant at time of global uncertainty.
“It is a bold and brilliant call by the Reserve Bank of India. Bold, because it is contrary to what people expected,” Chief economic adviser Arvind Subramanian said.
He said that if RBI had cut rates, then it would have been more attractive for investors to leave the Rupee and invest in other currencies. He said that it is also a very important fact. “Because these are uncertain times, because of domestic environments they also had to take into account that whether these liquidity flows into the banking system are going to be temporary or permanent. And so, it is worth waiting for a month or two, when we know what happens, to take a more considered medium term call,” he said.
Economic affairs secretary Shaktikanta Das said that there is uncertainty about US Fed rate decision which is due shortly. “So keeping the uncertainty in the international sector in mind...With some kind of resistance to downward pressure on inflation, RBI has taken a decision to take a pause and adopt wait and watch policy,” said Mr Das.
On full transmission of rate cuts so far, Mr Das said, expectation is that banks will lower the rates. “In fact, in the last 2-3 days, banks have cut interest rate. Against 175 basis points repo rate reduction by RBI from January 2015, banks have passed on 110 basis points to new borrowers and so far as existing loans are concerned it is lower than that,” he said.
On the downward revision of Gross Value Added from 7.6 per cent to 7.1 per cent, secretary said, the decline in GDP has been projected much more by several other quarters and the RBI projection counters that. As far as finance ministry is concerned, he said, “it is a bit early in the day to take a call. We will analyse the number and take a view.”
Finance Ministry is still in the process of making its assessment, Mr Subramanian said, adding, “because, there is a lot of anecdotal evidence that’s going on, with mixed signals coming and we still don’t have a good macro read”.
