Raghuram Rajan meets Chidambaram; discusses economic situation

Rajan discusses economic situation with Chidambaram

Ahead of the RBI's central board meet, the central bank chief Raghuram Rajan on Thursday met Finance Minister P Chidambaram and is understood to have discussed economic issues. "Our meeting was part of regular interaction that takes place between RBI and Finance Ministry," Rajan said after his hour long meeting with the Minister and Economic Affairs Secretary Arvind Mayaram. The Central Board of Reserve Bank will meet in Raipur on Friday to discuss key economic and financial developments. The RBI board meets at least once every quarter. The meeting would be chaired by Rajan. The four deputy governors are the official directors on the board, while Mayaram and Financial Services Secretary Rajiv Takru are the government nominees. There are also 11 non-official directors on RBI board. The meeting assumes significance in the wake of economic growth falling to a four year low of 4.4 per cent and current account deficit (CAD) at an elevated level of 4.9 per cent in the April-June quarter. While the government has been emphasising on measures for incentivising growth, the RBI in its policy review last month had hiked interest rates by 0.25 per cent. The RBI is scheduled to announce its second quarter policy review on October 29. Although Prime Minister Manmohan Singh and other government functionaries are expecting the growth to improve in the second half of this fiscal, Asian Development Bank in its recent report lowered India's growth projection for 2013-14 to 4.7 per cent. The economic growth rate slipped to a decade's low level of 5 per cent in 2012-13.

Raghuram Rajan unveils big initial package, promises more Mumbai: New RBI Governor Raghuram Rajan Wednesday came out with a slew of measures, including more trade settlement in rupees to rescue the battered financial markets and hinted at a shift in focus from inflation control, doggedly pursued by his predecessor, to boosting growth. Shortly after he took over as the 23rd Governor of the central bank, Rajan, 50, addressed the media with a prepared statement in which he laid out a detailed road map for his innings in the short term, which he called a "big initial package." He also rescheduled by a few days the date for his much-anticipated first monetary policy statement to September 20. The new Governor set up a number of committees for revising and strengthening monetary policy framework, financial stability, financial inclusion, NPAs and an outside panel of experts headed by former Governor Bimal Jalan to screen applications for new bank licenses. Rajan said the new bank licences will be issued around January next year. Apparently reflecting a shift in the approach from his predecessor D Subbarao, who had serious differences with the government of late, Rajan said the primary role of the bank is monetary stability to sustain confidence in the value of the rupee. "Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures. "...But we have two other important mandates; inclusive growth and development, as well as financial stability," he said. Asked about Subbarao's focus on targeting inflation, Rajan said he would reserve his comments till September 20. Rajan said the bunch of reforms has been unveiled today to enhance growth. "I think there are so many low-hanging fruits in the economy that if we only pluck them we can accelerate growth substantially." The former IMF chief economist and economic advisor to the Finance Ministry said there were some positive developments in the economy which will help to boost growth. The measures disclosed to support the rupee include liberalisation of the financial market by enhancing the limits for exporters to re-book cancelled forward exchange contracts and opening a special concessional window for swapping foreign currency non-resident (FCNR) deposits and dollar funds. "My sense is that we certainly don't need false optimism. But I think there is good reason to believe that in the medium run, the future of the country is strong," he said. Asked about Standard and Poor's downgrade threat, he said the international rating agency "nearly reiterated what has been its long standing claim about there being one-third possibility of a rating downgrade...It is not something new. So I won't read too much into the statement." The measures announced by Rajan include enhancing the re-booking limit on cancelled forward exchange contracts for exporters to 50 percent, extending a similar facility to importers and introducing cash settlement in 10-year interest rate future contracts to develop the money and G-sec markets. Rajan indicated the RBI will take steps to reduce the Statutory Liquidity Ratio (SLR) and introduce greater regulatory and supervisory control over the domestic operations of foreign banks. He promised to give freedom to banks to open branches without prior RBI permission. The new RBI chief also said he will steadily liberalise the markets and lift restrictions on investment and position-taking, together with SEBI, and will examine introduction of interest rate futures on overnight interest rates. While the RBI has enhanced the re-booking limit on cancelled forward currency contracts to 50 percent for exporters, importers will be allowed a 25 percent limit. The central bank will push for more trade settlements in rupees and open up the financial markets for those who receive rupees to invest it back in. Rajan said the RBI will raise the overseas borrowing limit of 50 percent of unimpaired Tier I capital to 100 percent for banks and will introduce cash-settled 10-year interest rate future contracts. The central bank will also examine introduction of interest rate futures on overnight interest rates; steadily but surely liberalise markets, restrictions on investments and position-taking; and issue inflation-indexed savings certificates tied to CPI to retail investors by end November. He stressed on the need to reduce the requirement for banks to invest in government securities in a calibrated way and will push foreign banks to set up wholly owned subsidiaries. Rajan proposes to collect credit data, examine large common exposures among banks and encourage banks to clean up their balance sheets. Referring to the announcements, he said, "This is a part of my short-term time-table for the Reserve Bank. It involves considerable change, and change is risky. But as India develops, not changing is even riskier. We have to keep what is good about our system, of which there is a tremendous amount, even while acting differently where warranted." He also announced a committee headed by RBI Deputy Governor Urjit Patel to strengthen monetary policy framework. The panel will submit its report in three months. Rajan said that a committee under former Governor Bimal Jalan would screen bank license applicants after an initial compilation of applications by the RBI staff. He said new bank licences will be announced "within, or soon after, the term of Deputy Governor Anand Sinha, who has been shepherding the process. His term expires in January 2014." Financial sector expert Nachiket Mor will head a panel to suggest steps to promote financial inclusion. Another committee, to be headed by Deputy Governor K C Chakrabarty, will take a close look at rising NPAs and suggest steps to improve the recovery of bad debts. "While the resumption of stalled projects and stronger growth will alleviate some of the banking system difficulties, we will encourage banks to clean up their balance sheets and commit to a capital-raising program where necessary. The bad loan problem is not alarming yet, but it will only fester and grow if left unaddressed," Rajan said. Stressing that India is a fundamentally sound economy with a bright future, the new RBI chief said, "Our task today is to build a bridge to the future, over the stormy waves produced by global financial markets. I have every confidence we will succeed in doing that."

Mumbai: New RBI Governor Raghuram Rajan Wednesday came out with a slew of measures, including more trade settlement in rupees to rescue the battered financial markets and hinted at a shift in focus from inflation control, doggedly pursued by his predecessor, to boosting growth.

Shortly after he took over as the 23rd Governor of the central bank, Rajan, 50, addressed the media with a prepared statement in which he laid out a detailed road map for his innings in the short term, which he called a "big initial package."

He also rescheduled by a few days the date for his much-anticipated first monetary policy statement to September 20.

The new Governor set up a number of committees for revising and strengthening monetary policy framework, financial stability, financial inclusion, NPAs and an outside panel of experts headed by former Governor Bimal Jalan to screen applications for new bank licenses.

Rajan said the new bank licences will be issued around January next year.

Apparently reflecting a shift in the approach from his predecessor D Subbarao, who had serious differences with the government of late, Rajan said the primary role of the bank is monetary stability to sustain confidence in the value of the rupee.

"Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.

"...But we have two other important mandates; inclusive growth and development, as well as financial stability," he said.

Asked about Subbarao's focus on targeting inflation, Rajan said he would reserve his comments till September 20.

Rajan said the bunch of reforms has been unveiled today to enhance growth.

"I think there are so many low-hanging fruits in the economy that if we only pluck them we can accelerate growth substantially."

The former IMF chief economist and economic advisor to the Finance Ministry said there were some positive developments in the economy which will help to boost growth.

The measures disclosed to support the rupee include liberalisation of the financial market by enhancing the limits for exporters to re-book cancelled forward exchange contracts and opening a special concessional window for swapping foreign currency non-resident (FCNR) deposits and dollar funds.

"My sense is that we certainly don't need false optimism. But I think there is good reason to believe that in the medium run, the future of the country is strong," he said.

Asked about Standard and Poor's downgrade threat, he said the international rating agency "nearly reiterated what has been its long standing claim about there being one-third possibility of a rating downgrade...It is not something new. So I won't read too much into the statement."

The measures announced by Rajan include enhancing the re-booking limit on cancelled forward exchange contracts for exporters to 50 percent, extending a similar facility to importers and introducing cash settlement in 10-year interest rate future contracts to develop the money and G-sec markets.

Rajan indicated the RBI will take steps to reduce the Statutory Liquidity Ratio (SLR) and introduce greater regulatory and supervisory control over the domestic operations of foreign banks. He promised to give freedom to banks to open branches without prior RBI permission.

The new RBI chief also said he will steadily liberalise the markets and lift restrictions on investment and position-taking, together with SEBI, and will examine introduction of interest rate futures on overnight interest rates.

While the RBI has enhanced the re-booking limit on cancelled forward currency contracts to 50 percent for exporters, importers will be allowed a 25 percent limit.

The central bank will push for more trade settlements in rupees and open up the financial markets for those who receive rupees to invest it back in.

Rajan said the RBI will raise the overseas borrowing limit of 50 percent of unimpaired Tier I capital to 100 percent for banks and will introduce cash-settled 10-year interest rate future contracts.

The central bank will also examine introduction of interest rate futures on overnight interest rates; steadily but surely liberalise markets, restrictions on investments and position-taking; and issue inflation-indexed savings certificates tied to CPI to retail investors by end November.

He stressed on the need to reduce the requirement for banks to invest in government securities in a calibrated way and will push foreign banks to set up wholly owned subsidiaries.

Rajan proposes to collect credit data, examine large common exposures among banks and encourage banks to clean up their balance sheets.

Referring to the announcements, he said, "This is a part of my short-term time-table for the Reserve Bank. It involves considerable change, and change is risky. But as India develops, not changing is even riskier. We have to keep what is good about our system, of which there is a tremendous amount, even while acting differently where warranted."

He also announced a committee headed by RBI Deputy Governor Urjit Patel to strengthen monetary policy framework. The panel will submit its report in three months.

Rajan said that a committee under former Governor Bimal Jalan would screen bank license applicants after an initial compilation of applications by the RBI staff.

He said new bank licences will be announced "within, or soon after, the term of Deputy Governor Anand Sinha, who has been shepherding the process. His term expires in January 2014."

Financial sector expert Nachiket Mor will head a panel to suggest steps to promote financial inclusion. Another committee, to be headed by Deputy Governor K C Chakrabarty, will take a close look at rising NPAs and suggest steps to improve the recovery of bad debts.

"While the resumption of stalled projects and stronger growth will alleviate some of the banking system difficulties, we will encourage banks to clean up their balance sheets and commit to a capital-raising program where necessary. The bad loan problem is not alarming yet, but it will only fester and grow if left unaddressed," Rajan said.

Stressing that India is a fundamentally sound economy with a bright future, the new RBI chief said, "Our task today is to build a bridge to the future, over the stormy waves produced by global financial markets. I have every confidence we will succeed in doing that."