'RBI has started talks on modern monetary policy framework'

Reserve Bank Governor Raghuram Rajan today said preliminary discussions have started on the proposed modern monetary policy framework that is aimed at addressing the challenges of a complex economy.

"I think we will be discussing the monetary framework over the course of the year. Just now, we started the preliminary discussions, but I think it will be discussed over the course of the year and the framework will be developed along with the Finance Ministry," he said.

Rajan was talking to reporters after addressing the RBI's Central Board meeting.

In his Budget speech, Finance Minister Arun Jaitley had said that it was essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy.

He had said that Government was in close consultations with the RBI will put in place such a framework.

An expert committee headed by RBI Deputy Governor Urjit Patel was appointed to revise and strengthen the monetary policy framework. Among other steps, it had recommended retail inflation or CPI (combined) should be used as the nominal anchor for a flexible inflation targeting framework.

The Economic Survey tabled in Parliament ahead of the Budget too had pitched for a formal monetary policy framework through which the RBI is given clarity of objective (a CPI inflation target) and operational autonomy in pursuit of that target.

Replying to another query on recent cuts in SLR, the Governor said at this point reduction in statutory liquidity ratio will not be helpful in expanding credit growth to private industry because demand for credit is yet to pick up.

"Credit growth is still to pick up in a strong way..Part of the reason why credit growth is not picking up...(because) industry is also borrowing from market.

"There is a lot of market borrowing going on, including through external market. So in that sense credit growth itself has been muted but overall resources going toward financing is quite strong," Rajan added.

He further said: Now also the that we cut SLR doesn't necessarily mean immediately they will transfer those resources out to government bonds".

To a question related to RBI's target to bring down retail inflation to 8 per cent by January 2015 and further down to 6 per cent next year, the Governor said: "We think that at the current interest rate, we are on course to meet those targets".

And of course, he added, "at this point, the uncertainty is two-way...if news comes on either side, we can change what the policy is. But as of now, we think the policy is on target. We are contingent on the data coming in".