Rajan meets FM ahead of policy review

RBI chief bats for a balanced decision on rate cut with govt

Ahead of the September 29 Monetary Policy Review, Reserve Bank of India (RBI) Governor Raghuram Rajan met Finance Minister Arun Jaitley on Tuesday, to apprise him about the current economic situation.

After the US Federal Reserve paused on rates last week, expectations are rising that RBI may cut interest rates in order to increase economic growth, but the risks of commodity prices rising and inflation upticks are still high.

“The meeting was cordial,” Rajan said, without divulging details of the meeting.
The Finance Minister along with India Inc has been nudging the RBI to cut interest rates, but Rajan has said in clear terms that rates are not some “goodies” which the RBI hands out after “public pleading”.

The most recent demand for the rate cut from Jaitley came on Monday when he said, “RBI historically has been a very responsible institution. Now, as somebody who wants India’s economy to grow and who wants domestic demand to grow, I will want the rates to come down. I am certain that the RBI, along with the Governor and all his colleagues, will come to a very balanced decision on this matter”.

RBI has cut rates by 75 bps so far in 2015, but banks have lowered lending rates by 30-40 bps. India Inc has been demanding steeper rate cuts in a bid to revive the private investment cycle and stimulate growth.

Supports MSME lending
Rajan said lending to MSME entrepreneurs particularly in the eCommerce space makes a strong business sense for the banks given the changing dynamics of the economy.
With continuous handholding of MSME entrepreneurs, bankers can help them sell their products on eCommerce space and reach a huge market space without having brick and mortal presence, he said at the Town Hall organised by RBI.