RBI Governor Shaktikanta Das said that the Monetary Policy Committee’s decision to maintain status quo on policy rates for the second time in a row, must not be viewed as a pointer for future action.
Addressing the post-policy press conference in Mumbai today, Mr. Das said even though the decision is as per expectation, it is important not to discount the role of RBI. He said the apex bank has many instruments and tools at its disposal to address the current economic slowdown, not just interest rates.
While stating that inflation outlook remains uncertain, the RBI Governor informed that a spike in onion prices last year, was alone responsible for a hike of 328 basis points in food inflation.
Reiterating that there is space for policy action, Mr. Das said, the decision on policy rates will be made once inflation starts to decelerate, adding that RBI remains vigilant to a potential generalization of inflation.
He further said that RBI’s Monetary Policy Committee will continue to remain proactive as it was last year when the repo rate was reduced by 135 basis points. On the policy transmission front, the RBI Governor said, the transmission has remained sizeable so far.
In order to ensure availability of adequate liquidity in the banking system and also to encourage banks to lend more to productive sectors of the economy, the RBI Governor announced that it will soon start conducting long-term repos of one-year and three-year tenors of appropriate sizes for up to a total amount of 1,00,000 crore rupees.
The Governor said, this measure will assure banks about the availability of durable liquidity at a reasonable cost relative to prevailing market conditions.
While the Governor said that several budgetary announcements like reduction in Income Tax slabs and other sector-specific announcements are likely to boost demand and spurt public spending; he also clarified that the five-fold hike in deposit insurance will not have any large impact on bank balance sheets.
In another major announcement, RBI has announced that banks will now be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans from their net demand and time for maintenance of cash reserve ratio.
This exemption will be available for incremental credit extended up to the fortnight ending 31st July this year and only be valid for retail loans offered for automobiles, residential housing and loans to micro, small and medium enterprises.