Reserve Bank of India Governor Shaktikanta Das told CNBC-TV18 on Monday that the central bank’s monetary policy committee would continue to focus on growth as inflation was expected to stay within the medium-term target. The central bank chief said the fall in Gross Domestic Product growth to a six-year low of 5% in the April-June quarter was surprising.
“The numbers definitely look much worse because in the first quarter we had projected 5.8% and I think almost everybody had projected not below 5.5% or so,” he said. “But the number of 5% is a surprise. So we are analysing why exactly it has happened...”
Das said in February the monetary policy committee had started cutting the rates by 25 basis points as it was evident that the economy was slowing down. “There is a slowdown, which was evident and at the last MPC we very clearly said that growth seems to be losing traction and therefore, growth is a matter of highest priority,” he said.
Das said current account and fiscal deficit could take a hit if oil prices continue to rise in the aftermath of drone attacks by Yemeni rebels on two Saudi Arabian oil fields.
“We should allow a few more days to see how it plays out before taking a final view,” the central bank chief told the channel. Pointing out that the attacks had disrupted 5% of Saudi Aramco’s global output, Das said the impact would be felt by currencies and markets across the world. “It will have some impact on the current account deficit and perhaps on fiscal deficit if it lasts longer,” he added.
Das said it was important to see if alternative sources of supply come up and how soon the installations take to resume operation. “According to some estimates it may take two to three months but I would like to wait for the official position from the Saudi authorities on how much time they are going to take to fill up this gap which has been created,” he added. “So temporarily there will be some impact whether this temporary effect will last longer, I think the picture will become clearer in the next few days.”
Das said public sector banks had a certain role in the economy and there was no point talking about privatising them. “What is required is governance reforms, what is required is more flexibility to the public sector bank management and the current round of governance reforms which government proposes to announce...,” he added.
The central bank chief said to ensure that state-run banks function efficiently “the focus has to be on governance reforms, the focus has to be on giving them more flexibility of operations”.
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