With Raghuram Rajan in focus, RBI monetary policy review on Tuesday

Reserve Bank of India (RBI) Governor Raghuram Rajan. (File Photo: IANS)

Mumbai – RBI Governor Raghuram Rajan will announce on Tuesday the second bi-monthly monetary policy review of the current financial year, at a time when he has been attacked for alleged failure to lower interest rates and boost the economy.

Making Reserve Bank of India’s first policy review of the financial year in April, Rajan had cut the central bank’s repo, or short-term rate at which it lends to commercial banks, by 25 basis points to 6.5 per cent.

The RBI also introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated an accommodative stance going ahead.

It narrowed the policy rate corridor to 0.50 per cent from the earlier one percentage point, which resulted in the reverse repo rate — at which banks can park excess funds with the RBI — being reset at six per cent.

Expectations of a rate cut at RBI’s Tuesday policy review are lower after retail inflation rose to 5.39 per cent in April, which was above Rajan’s near-term target of five per cent by March 2017.

However, official data last month showed India was one of the world’s fastest growing economies in the March quarter, with gross domestic product growing at a rate of 7.9 per cent.

On the other hand, making the case for a rate cut, a business survey last week showed that growth in India’s private sector output declined in May as manufacturing and service sectors lost momentum in conditions of softer domestic demand, while services slowed sharply to a six-month low.

The Nikkei Manufacturing Purchasing Managers’ Index, released on Thursday, rose marginally to 50.7 in May from 50.5 in April.

“Following broadly stagnant levels in April, order book volumes increased during May. The pace of expansion was, however, only slight and well below its long-term average,” the report said.

Meanwhile, with Rajan’s current three-year term ending in the first week of September, an online petition pushing for a second term for him has gone viral and has gathered close to 60,000 signatures in support.

The petition, filed last month on change.org by Bengaluru-based Rajesh Palaria and addressed to Prime Minister Narendra Modi, has been logging support at a fast rate and had recorded 58,262 votes by Monday.

Seeking support, Rajesh Palaria says: “I was recently noticing how Shri Subramanian Swamy has been bullying and threatening him (Rajan) at large. I request all of my fellow citizens to sign this petition and seek (Prime Minister Narendra) Modi to depute Raghuram Rajan for second term as RBI Governor. He is very crucial for India Growth Story now (sic).”

Many Indian corporate leaders too have voiced their preference for an extension in Rajan’s tenure by the government.