Reserve Bank of India Governor Sanjay Malhotra and four Deputy Governors, in the post policy press conference on Friday said, the central bank remains committed to its 4% target despite a higher inflation outlook. They also expressed confidence that measures announced to attract foreign currency inflows will support a stronger balance of payments position. Malhotra said the RBI expects healthy inflows through ECB and FCNR(B) deposit schemes and will remain data-dependent on future policy actions. Excerpts:
Can you share more details on the ECB and FCNR(B) schemes?
We are still working out the details, but the broad contours have already been announced. The CRR and SLR dispensations will certainly be provided. Beyond that, there are no special regulatory relaxations and the existing framework will continue to apply.
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We are not targeting any specific amount, but we do expect healthy inflows after today’s announcements. Along with the earlier liberalisation of the ECB framework, measures relating to equity and government bonds, and broader government initiatives such as trade agreements, we are confident of a much stronger balance of payments position this year than would otherwise have been the case.
Can we assume that the RBI has effectively put the 4% inflation target in abeyance and is focusing more on the 2-6% range, as during the pandemic?
No. The 4% target remains sacrosanct. It is the target assigned to us by the government and our endeavour continues to be to achieve it. However, inflation targeting is meant to be achieved over a period of time. It is neither desirable nor practical to react to every deviation, particularly when it is driven by temporary supply shocks. Such actions could have disproportionate consequences for growth.
There’s a 50 basis points upward revision in baseline CPI inflation forecast with the upside risk. Does this strengthen the case for a rate hike in the next meeting?
In the next meeting or later, whether it strengthens the case or not, I don’t know. But obviously, it’s more adverse than it was previously, certainly.
Given the inflows expected from these measures, what level of system liquidity would be appropriate? Will banks pass on the benefits of lower hedging costs to customers?
Yes, I expect banks to pass on at least some of the benefits of lower hedging costs. We will provide adequate liquidity to ensure that the credit needs of the economy are met, whether through banks or the bond market. We do not target any specific liquidity level.
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When will the updated upper-layer NBFC list be released? Also, is the RBI concerned about governance developments at a large private-sector bank?
We do not comment on institution-specific matters. As for the upper-layer list, the current list remains in force and an updated list will be issued shortly.
What crude oil price assumption has the RBI built into its projections?
Our current assumption is $95 per barrel. This is higher than the previous assumption and is one of the reasons why our inflation projection has been revised upwards.
Seemingly there is enough cash in circulation but we also keep hearing that ATMs are running short of cash. Are you worried about it or something needs to be done there?
Every year we build a plan of what the requirement of currency is and that is provided to the banks as and when it is required. Certainly, if there is a shortage, we will ensure that the shortage is met with. But we have sufficient currency to provide and fill and refill the ATMs and the bank branches.
Is the RBI satisfied with the pace of transmission and are there any areas where further improvement is needed?
I think it is quite satisfactory. And we will continue to work on further improving it wherever we find there is scope.
TOPICSReserve Bank of IndiaThis article was first uploaded on June five, twenty twenty-six, at twenty-nine minutes past ten in the night. © The Indian Express (P) Ltd