“Government’s objective is to incentivise growth…growth is something that the government will hope for. But ultimately this is the decision that the Governor will take, considering the macroeconomic situation,” Economic Affairs Secretary Arvind Mayaram said on Thursday.
So far, RBI’s stance has been to anchor inflationary expectations, prompting the industry to persistently clamour for rate cuts to promote investment and revive growth.
Economic growth hit a decade low of 5 per cent last fiscal while it grew at its slowest pace in four years at just 4.4 per cent in the first quarter of the current fiscal.
New Reserve Bank Governor Raghuram Rajan will announce his maiden monetary policy review today amid conflicting demands for rate cut and an urgent need to contain inflation which soared to 6-month high of 6.1 per cent in August.
Much to Rajan’s comfort, the US Federal Reserve has decided against tapering its monetary stimulus – under which it has been buying assets worth USD 85 billion every month – giving him space to go ahead with steps to revive economic growth.
The positive impact of the Fed decision on stock and currency markets today will have a bearing on Rajan’s policy announcements, which was pushed back by two days in view of the Fed’s crucial meeting on Wednesday.
In its last policy review in July, the RBI chose to keep all key interest rates unchanged on account of a weak rupee.
Accordingly, the repo rate or the rate at which RBI lends to the system, has been retained at 7.25 per cent and the cash reserve ratio (CRR), the amount of deposits banks park with RBI, has been kept unchanged at 4 per cent.