Taming inflation a high priority: RBI

Reduction in inflation, speeding up the resolution of distressed projects, and passing on future possible rate cuts are some of the short-term macroeconomic priorities of the Reserve Bank of India (RBI), according to the central bank’s Governor Raghuram Rajan.

“Economic growth is still below levels that the country is capable of. Second, inflation projections for January 2016 (as of early August 2015) are still at the upper limits of RBI’s inflation objective. Third, the willingness of banks to cut base rates, whereby they forego income on existing borrowers in order to attract more new business, is muted; not only does weak corporate investment reduce the volume of new profitable loans, some bank capital positions, weakened by non-performing assets (NPAs), may prevent them from lending freely,” Rajan said in the central bank’s annual report.

The short-term macroeconomic priorities of the Reserve Bank are therefore clear: focus on bringing down inflation in line with the proposed glide path; work with the government and banks on speeding up the resolution of distressed projects, and cleaning up bank balance sheets; ensure banks have the capital to make provisions; support new lending, and thus pass on future possible rate cuts, Rajan added.

Rajan also said that RBI is seeking to improve quality of bank notes and intends to start a pilot with plastic/polymer bank notes.

“RBI is constantly seeking to improve the quality of bank notes it issues, even while making sure that notes are available wherever needed. A new series of bank notes are being issued, and we also intend to start a pilot project with plastic/polymer bank notes,” said the apex bank chief.