Tax cuts on fuel positive development: RBI Governor
Reserve Bank of India Governor Shaktikanta Das has applauded tax cuts on fuel as a positive development that would help the central bank meet its 5.3% inflation target. Das believes the growth target of 9.5% is also achievable.
Speaking during a fireside chat in a banking summit organized by a business daily, the RBI Governor said that as long as the central bank maintained its accommodative stance, funds would be surplus. He pointed out that prices of energy, steel and commodities have gone up but there is a sense among some analysts that they have peaked. “We expect that it will be in line with our projection of 5.3% as positive developments emerging from petrol/diesel cut have not been factored in.”
Cautioning against global developments, Das said global headwinds are coming up. “Growth in most developed and advanced economies, which was positive until second quarter, seems to have moderated. Global growth of 5.9% target may undershoot because of shortage of semiconductors and shipping containers. Freight charges and commodity prices have gone up. COVID seems to be a rising concern in some countries in Asia and the West.”
The central bank governor highlighted that banks need to price risks properly and decide on the extent of exposure they want to take in each sector – what percentage should go for retail and housing is for bank boards to decide and allocate risk pricing. Das said the growth in home loans was a combination of the increased demand for large homes because of the pandemic, coupled with the record drop in interest rates. “Over the last one year, corporates have accessed more funds from the bond market than bank funding. That is a positive development. When they go to the market, the market will decide the risk and price the bonds. So far as bank credit is concerned, our interactions show that there are signs of investment pick-up,” he said.
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In regards to withdrawal of liquidity, Das said the measures were designed for a finite period and the liquidity would be rebalanced. He explained that the money released from reduction in cash reserve ratio has come back and part of the long-term repo operations money has also returned. “So the liquidity is getting rebalanced. As long as the policy stance is accommodative, liquidity will be in surplus, but the excess liquidity will be rebalanced.”
The governor also said that despite the expansion of the RBI balance sheet, the need for capital infusion into the central bank was kind of a situation that will not arise.
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