Welcoming the Reserve Bank of India’s decision to cut short-term lending rates by 50 basis points, Finance Minister Arun Jaitley said yesterday this will support growth, while showing that inflationary pressures were now moderating.
The finance minister also welcomed the decision to allow the corporate sector to issue rupee-denominated bonds in overseas markets, often called “Masala Bonds”, and said it will give access to additional credit for India Inc.
“Today’s rate cut will boost investment and growth,” Jaitley said, soon after the 4th bi-monthly monetary policy update by Reserve Bank of India governor Raghuram Rajan, adding that the government would like to see commercial banks reciprocating with own interest rate cuts.
“We are looking forward now to the transmission of these cuts, which will help boost economy and confidence,” the finance minister added.
The central bank cut by 50 basis points its repurchase rate, or the interest charged on short-term borrowings, to 6.75%, which automatically cut the indexed reverse repo rate, or the interest payable by the central bank on short-term deposit, to 5.75%.
“The government is committed to meet its fiscal deficit target to consolidate the gains achieved in reducing inflation,” the finance minister said.
On Monday also, addressing Indian Banks’ Association’s annual general meeting in Mumbai, Jaitley said he is confident of maintaining fiscal deficit at 3.9% in the current financial year.
In his February budget, Jaitley had extended the target deadline for controlling fiscal deficit to 3%, reasoning that insistence on a timetable to contain the deficit would harm growth prospects.
The targets for the next three years have been set at 3.9% for 2015-16, 3.5% for 2016-17, and 3% for 2017-18.
RBI deputy governor Urjit Patel said yesterday that the current processes of fiscal deficit control and tepid capacity utilisation that holds hopes for higher growth would both help to lower inflation.
“Fiscal deficit reduction over the medium-term is on track, which is good for inflation control,” Patel said following the RBI monetary policy announcement.
Speaking about the rupee-denominated bonds, Economic Affairs secretary Shaktikanta Das said there was not only an appetite for such commercial paper in the global markets, but will also shied the corporate sector from currency fluctuations.
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