RBI: Rates haven’t held back growth

A day after leaving interest rates unchanged for the second time in as many months, RBI Governor Raghuram Rajan today said interest rates are not holding back the economy.

He also maintained that RBI’s move to clean up balance sheets of banks is not aimed at reducing the risk-taking appetite of company owners.

“I do not think interest rates are what hold back the economy today,” Dr Rajan, who had cut interest rate by 1.25 per cent in 2015, but left them unchanged in Decem-ber and Tuesday’s bi-monthly policy review, told a television channel.

He said there was “a time when people said I was nuts to even think of bringing inflation down below six per cent. They said I was subjecting the economy to severe stress. But all that is in the background now.”

In an apparent rejection of theory that slump in oil prices has helped bring down inflation, he said the government has “kept back” 75 per cent of the oil price bonanza through higher taxes.

“That means it is not oil prices. Yes, commodities have helped and government’s food management has helped too. But you should be gracious enough to give some credit where credit is due,” he said.

Inflation, he said, has come down largely according to the path that RBI set out.

Asked who should get the credit for the fall in inflation — commodity slide, the government’s food management and fiscal responsibility, or monetary policy, he said, “We can debate on that too.”

But what is more important lies in borrowing, he said. “Firms now seem to be very reluctant to take on credit. Banks have not, therefore, felt the need to pass through rate cuts to them. But savings also needed a big change. Remember, our household savings had fallen considerably, and even now they are not at a point where we are comfortable.”