Press Trust of India
Mumbai, August 20: Reserve Bank Governor Raghuram Rajan Thursday said there is a pick up in the economy and expressed hope that rural demand will get stronger if the monsoon improves. “We do believe that there is pick-up,” Rajan said, while speaking at the second SBI Banking and Economics Conclave here. In comments that came two days after Moody’s Investors Service lowered its India growth forecast on poor monsoon concerns, Rajan said the sowing is good and he hopes that the rains do not deteriorate.
“Hopefully, if the monsoon does not deteriorate and in fact improves, sowing has been very good, you may see rural demand coming back more strongly,” he said. Rajan added that this will be a “tremendous bonus” to the economy relative to where we are”. Moody’s cut its growth estimate to 7 per cent in 2015 from the earlier 7.5 per cent, citing worries on rains and the lack of pace of reforms.
The government has been targeting growth to come at over 7.8 per cent for the fiscal and gradually accelerate further to close to double digits. The RBI had also cuts its growth projection in the June policy statement to 7.6 per cent, and maintained it in the August month review. Following the Moody’s statement, Minister of State for Finance Jayant Sinha had affirmed the government’s commitment to carry on with reforms.
Rate cut to depend on monsoon
Amid persistent rate cut calls from the government and the industry, RBI Governor Raghuram Rajan 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.
Small finance bank licences in Sep
After granting approval to 11 entities for payments banks, RBI said it will announce small finance bank licences next month and allayed concerns that these new entities can pose any threat to existing banks. RBI Governor Raghuram Rajan said that new payments banks would not pose any competitive threat to the existing banks and these new entities would rather serve as ‘feeder’ for the universal banks. The RBI had received 72 applications for small finance bank licences and 41 applications for payment bank licences. Those having applied for small finance banks include DHFL, IIFL Holdings, Lulu Forex, SKS Microfinance, UAE Exchange and Ujjivan Financial. Rajan said that RBI would announce small finance bank licences next month. The small finance banks can provide basic banking services like accepting deposits and lending to the unbanked sections such as small farmers, micro business enterprises, micro and small industries and unorganised sector entities.
‘Devaluation worrisome’
Terming devaluation of currencies as a “worrisome trend”, RBI Governor Raghuram Rajan said China’s move to devalue its currency and to protect its stock markets raise questions about the ‘true strength’ of the world’s second largest economy. “I think more generally across the globe, because of a weak demand, we’ve seen significant efforts to depreciate currency, you can call it monetary policy or direct exchange rate intervention. That’s a worrisome trend. “The Chinese move raised some questions about the true strength of its economy also,” Rajan said.
