Rupee, inflation to weigh on upcoming RBI policy review: PMEAC

Inflation and forex market conditions are expected to weigh on the Reserve Bank decision as it reviews monetary policy later this week, PMEAC Chairman C Rangarajan said today.

 

"All that I can say is that the RBI, I believe, will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision," he said on the sidelines of an Assocham organised event here.

 

RBI is scheduled to announce mid-quarter review of the monetary policy for 2013-14 on September 20.

 

Inflation, based on the Wholesale Price Index, for August rose to 6.10% from 5.79% in July, as per the official data released today. It was 8.01% in August last year.

 

The rupee has meanwhile appreciated to 62.75 level after having hit the life-time low of 68.85 against the US dollar towards August-end.

 

On the impact of the likely tapering of quantitative easing by the US Fed this week, the Prime Minister's Economic Advisory Council (PMEAC) Chairman said: "The impact of the tapering has already been digested. The market has already reacted to that."

 

Therefore, he said, whatever adjustment that will be made to the tapering has been practically completed by now.

 

"But in any case the reactions to the tapering will be a global phenomenon, not necessarily a phenomenon related to India," he said.

 

Expressing concern over increase in the gross non- performing assets of the banks, Rangarajan said they have risen from 2.3% at the end of 2010-11 to 3.2% at the end of 2011-12 and to 3.92% at the end of June, 2013.

 

Further, the Indian banks' restructured standard assets have increased sharply to 6.1% as on June 30, 2013.

 

Banks will need to watch out for liquidity risks which will increase because of maturity mismatches, he said, adding that the increased exposure to real estate and infrastructure will lengthen maturity of bank assets.