From fiscal health to monetary policy: Everything Jaitley, Urjit Patel said

Arun Jaitley and Urjit Patel. Photo: Sanjay Sharma
RBI Governor Urjit Patel on Saturday said the monetary policy decisions need to be "forward-looking" and cannot be taken on the basis of day-to-day inflation rates. 

Stating that it is difficult to predict global oil prices, Patel said the global charts have shown two-way movement in the recent days and there is a need to be prepared for both the scenarios of rising and falling rates.

Speaking to reporters after Finance Minister Arun Jaitley's customary post-Budget address to RBI's board, the governor also exuded confidence about improving credit growth and the encouraging trend of companies being able to raise a fair amount of funds from the capital markets.

On the monetary policy framework, Patel said the Monetary Policy Committee (MPC), which decided to keep the key rates unchanged earlier this week, has explained its reasons for the decisions it takes as per the policy framework and the inflation targeting system that has been followed on account of legislative change.

"We have to be forward-looking when conducting monetary policy rather than looking at inflation rates today or yesterday. And given that MPC has explained its decision in great detail, our resolutions are possibly the longest compared to most central banks of the world... We explain our decisions carefully, twice a year we have the monetary policy report," he said.

"I think that our decisions have been forward-looking rather than backward-looking," Patel said, while asserting that the GDP growth rate is showing an upward trend.

Jaitley also said that he considered the MPC's last decision to be "a balanced" one and as far as the fiscal situation is concerned, he sees it to be reasonably more comfortable next year on the revenues front.

"Therefore, I cannot at this stage say there would be any slippage. I am sure we will be able to maintain the (fiscal deficit) target quite well. You cannot on basis of hypothetical situation like oil prices... What has happened in the three days nobody had predicted. So that's entering into an area on which there is no certainty at the moment," the finance minister said.

Agreeing with the minister, Patel said the MPC decision took into account all the downside risks and mitigating factors.

"We had observed that in recent days, oil prices had two-way movement. So what the finance minister has said is the correct point. We need to be prepared for movements either way because it is just very difficult to predict oil prices. A few months ago, June or so, people were talking about oil prices never going above $45 per barrel and some of the advise (that) had come to MPC was based on that," he said.

While the global oil prices have cooled a bit in last 2-3 days, there have been concerns about the potential headwinds from a rise in crude prices.

On credit growth, Jaitley said, "I think indications are there that it is already happening. That seems to be a good sign and now with the recapitalisation of banks the capacity to lend will increase."

Referring to his meeting with Sebi's board in the morning, Jaitley said one of the factors that stood out in the market regulator's presentation was that there is now an increased reliance on the bond market as far as credit is concerned.

Patel also said the capital market's contribution to fund-raising has also gone up substantially.

"So we will have better equity-debt ratio (for corporates) given that the entities have been able to raise fair bit of equity. I think that... We are already at the credit growth of 11 per cent or so," he said. 

The RBI governor said that most of the rate transmission happened after demonetisation. He also said that he didn't see any systemic risk due to current market volatility.      

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