Mumbai: The Reserve Bank of India’s (RBI’s) interest rate moves will be guided more by domestic factors than external ones, governor Raghuram Rajan told analysts in a conference call on Wednesday, a day after he left rates unchanged, as widely expected.
The central bank governor said the RBI does not manage liquidity through foreign exchange markets, and added it could consider increasing the foreign debt limits, should the existing limits fill up.
The RBI kept its key policy repo rate unchanged on Tuesday, and voiced a commitment to bringing down inflation that convinced many analysts that markets will have to wait until next year for the next cut in rates.
Rajan on Wednesday also said the 4.1% fiscal deficit goal set by the government for the current fiscal is an “ambitious target”. Rajan said about the target: “The government will achieve it if it does want. It has done before. But how it achieves it is what is important.”
During 2013-14, the fiscal deficit—the difference between the government’s income and expenditure— was 4.% of the gross domestic product (GDP). He said India has the capacity to bring the deficit under control provided there is improvement in revenue collection.
Rajan also said RBI is all for reducing “pre-emptions” over a longer horizon for more efficiency in the financial system. “The broader, longer-term programme of five years, is that we should reduce the amount of pre-emptions we have in the system including SLR (statutory liquidity ratio) and make a more effective priority sector lending (PSL) process,” he said.
