RBI's future policy action to consider 7th Pay Panel proposals

RBI's future policy action to consider 7th Pay Panel proposals

RBI's future policy action to consider 7th Pay Panel proposals
Though RBI has kept the policy interest rates unchanged, Governor Raghuram Rajan on Tuesday said future policy action will take into account the implementation of the Seventh Pay Commission proposals, and its effect on wages and rents.

He, however, said that the pay commission payouts will not upset government’s fiscal maths.

“The implementation of the Pay Commission proposals, and its effect on wages and rents, will also be a factor in the Reserve Bank’s future deliberations, though its direct effect on aggregate demand is likely to be offset by appropriate budgetary tightening as the Government stays on the fiscal consolidation path,” Rajan said in the Fifth bi-monthly monetary policy review for 2015-16.

The Seventh Pay Commission has recently submitted its report to the government recommending a 23 per cent hike in salaries, allowances and pensions of around one crore people (central government employees and pensioners). The recommendations, to be implemented from January one, are expected to burden the exchequer to the tune of Rs 1,02,100 crore.

Although much of the pay commission payouts have been factored in in the medium term fiscal policy of the government, a whopping increase of more than 138 per cent in house rent allowance is expected to put some pressure on the inflation scenario going forward.

Meanwhile, the Finance Ministry called Tuesday’s monetary policy stance of the RBI as a “very balanced approach” in promoting growth and managing inflation. India Inc too welcomed the central banks’s step, but called upon banks to fully transmit the rate cuts in order to revive weak rural demand and investments.
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