 "Not going to judge Modi's 1st full-year Budget: Rajan")
While Reserve Bank of India Governor Raghuram Rajan has linked further rate cut rates to Prime Minister Narendra Modi's first full-year Budget, he's quick to emphasise he's not conducting a trial.
"I'm not sitting in judgement over the government," Rajan, 52, said in an interview with Bloomberg TV India's Harsha Subramaniam at the central bank's headquarters in Mumbai on Wednesday. "My role is to keep inflation under control, and historically the problem has been that fiscal, expansionary fiscal policies have an effect on inflation in India."
Along with inflation data, Rajan flagged Modi's Budget on February 28 as one of the key determinants of future policy moves when he held the benchmark rate at 7.75 per cent on Tuesday. Interest rate swaps show that investors are betting on another 75 basis points of cuts in the calendar year.
"It has to be that the package that is put together, and let me emphasize the package, has to be such that it gives us comfort that inflation will not be enhanced," Rajan said, adding that he won't be looking at a specific deficit number.
Rechannelling spending that is "mistargeted" toward capital expenditure that creates supply would help contain inflation, Rajan said, adding that such a move would be positive.
Policy impact?
"Things like that will be what we would look for," Rajan said. "That would give us a sense that the whole package together is moving us in the direction that the finance ministry and the finance minister have emphasised."
Budget's impact on future rate cuts
"It's an input into the monetary policy decision because it affects inflation," Rajan said. "That's all."
Finance Minister Arun Jaitley has pledged to narrow the fiscal deficit to a seven-year low of 4.1 per cent of gross domestic product (GDP) in the year through March 31.
With revenues lagging and the deficit exceeding the target in the first nine months, he'll probably have to reduce spending on roads, ports and highways to meet his goal.
The 52 per cent plunge in Brent crude oil since June will help both to contain inflation and the Budget deficit. India stands to be Asia's biggest beneficiary from the fall because it imports almost all of its fuel, Moody's Investors Service reported.
Interest rate wand
The current account will swing to a surplus in the coming financial year, Barclays Plc projects, adding that Jaitley has room to more than halve fuel subsidies and earn Rs 1 lakh crore, or 0.7 per cent of GDP, from higher excise duties on petrol and diesel.
Jaitley has repeatedly said, most recently in December, that capital costs that are among Asia's highest pose a hurdle to expansion in the region's third-largest economy.
Rajan said on Wednesday that excess capacity in Indian industry and obstacles to project implementation are stronger impediments to growth than monetary policy.
"The interest rate wand isn't going to produce all the magic people expect from it," Rajan said. "But it's going to be part of the answer rather than the whole answer."
'Fratricidal war'
Since Modi won elections in May, Rajan has criticised the nations' tycoons, called for direct cash transfers to the poor, urged deregulation of diesel prices and advised against subsidising exports as part of "Make in India," the prime minister's flagship plan to boost local manufacturing.
Rajan was appointed to a three-year term by the previous government, eight months before it was voted out of office. Modi will decide whether to extend his term by two years or find a replacement.
"I'm sure we have different views on certain issues," Rajan said on Wednesday. "You can always expand the daylight into a fratricidal war, but that doesn't exist."
"I'm not sitting in judgement over the government," Rajan, 52, said in an interview with Bloomberg TV India's Harsha Subramaniam at the central bank's headquarters in Mumbai on Wednesday. "My role is to keep inflation under control, and historically the problem has been that fiscal, expansionary fiscal policies have an effect on inflation in India."
Along with inflation data, Rajan flagged Modi's Budget on February 28 as one of the key determinants of future policy moves when he held the benchmark rate at 7.75 per cent on Tuesday. Interest rate swaps show that investors are betting on another 75 basis points of cuts in the calendar year.
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In the policy statement, Rajan says he wanted to see "high-quality fiscal consolidation". He added that "the unlikely possibility of significant fiscal slippage" is an upside risk to hitting his inflation target of six per cent for January 2016.
"It has to be that the package that is put together, and let me emphasize the package, has to be such that it gives us comfort that inflation will not be enhanced," Rajan said, adding that he won't be looking at a specific deficit number.
Rechannelling spending that is "mistargeted" toward capital expenditure that creates supply would help contain inflation, Rajan said, adding that such a move would be positive.
Policy impact?
"Things like that will be what we would look for," Rajan said. "That would give us a sense that the whole package together is moving us in the direction that the finance ministry and the finance minister have emphasised."
Budget's impact on future rate cuts
"It's an input into the monetary policy decision because it affects inflation," Rajan said. "That's all."
Finance Minister Arun Jaitley has pledged to narrow the fiscal deficit to a seven-year low of 4.1 per cent of gross domestic product (GDP) in the year through March 31.
With revenues lagging and the deficit exceeding the target in the first nine months, he'll probably have to reduce spending on roads, ports and highways to meet his goal.
The 52 per cent plunge in Brent crude oil since June will help both to contain inflation and the Budget deficit. India stands to be Asia's biggest beneficiary from the fall because it imports almost all of its fuel, Moody's Investors Service reported.
Interest rate wand
The current account will swing to a surplus in the coming financial year, Barclays Plc projects, adding that Jaitley has room to more than halve fuel subsidies and earn Rs 1 lakh crore, or 0.7 per cent of GDP, from higher excise duties on petrol and diesel.
Jaitley has repeatedly said, most recently in December, that capital costs that are among Asia's highest pose a hurdle to expansion in the region's third-largest economy.
Rajan said on Wednesday that excess capacity in Indian industry and obstacles to project implementation are stronger impediments to growth than monetary policy.
"The interest rate wand isn't going to produce all the magic people expect from it," Rajan said. "But it's going to be part of the answer rather than the whole answer."
'Fratricidal war'
Since Modi won elections in May, Rajan has criticised the nations' tycoons, called for direct cash transfers to the poor, urged deregulation of diesel prices and advised against subsidising exports as part of "Make in India," the prime minister's flagship plan to boost local manufacturing.
Rajan was appointed to a three-year term by the previous government, eight months before it was voted out of office. Modi will decide whether to extend his term by two years or find a replacement.
"I'm sure we have different views on certain issues," Rajan said on Wednesday. "You can always expand the daylight into a fratricidal war, but that doesn't exist."