Conditions in place for faster growth, says Raghuram Rajan

Conditions are in place for the Indian economy to start growing faster in the next few quarters as banks pass on its rate cuts to their borrowers, Reserve Bank of India governor Raghuram Rajan said on Wednesday.

Still, Dr Rajan left open the prospect for more easing should inflation conditions allow it, though he added that inflation in services, education and health care had not yet eased “dramatically.”

In an interview to Bloomberg TV, Dr Rajan said a softening in inflation to closer to global trends of lower inflation would add room for potential rate cuts. The RBI cut its policy rate by 25 basis point to a more than five-year low of 6.50 per cent on Tuesday.

Meanwhile, RBI deputy governor S.S. Mundra expressed hope that transmission of lower interest rate through banks will be more effective this time.

“There is a holistic view this time, there is a rate cut, there is liquidity framework, and Marginal Cost of Funds based Lending Rate (MCLR) has also become operational from April 1. We are quite confident that with combination of all these factors transmission would be much more effective,” he said on the sidelines of an Assocham event here.

He, however, added that it would be unfair to say nothing has been transmitted. “There had been transmission, may be slightly less than the expectations.”

On Tuesday, Dr Rajan had said that the 0.25 per cent rate cut should be looked at in conjunction with the new loan pricing method that has already resulted in rates coming down by up to 0.5 per cent.

“Don’t look at the monetary policy review as 25 bps (cut alone). Look at the composite of measures, they all add up. Loan rates are coming down significantly,” Dr Rajan had said.