RBI to focus on medium-term inflation: Rajan | Current Affairs, Current Affairs 2017

RBI to focus on medium-term inflation: Rajan

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Debt-waivers-have-not-benefited-farmers-RBI-chiefThe Reserve Bank of India (RBI) would focus on medium-term inflation to let the economy adjust to the changes, its Governor Raghuram Rajan said Saturday.

He also observed that debt waiver schemes of central and state governments have not benefited farmers as they restricted credit flow subsequently

“We would like to focus on medium-term inflation, which gives time for the economy to adjust to the changes that are happening than chase short-term inflationary goals,” Rajan said at the 97th annual conference of the Indian Economic Association (IEA).

The three-day conference is organised jointly by IEA and the economics department of Mohan Lal Sukhadia University in this Rajasthan town, about 420km from Jaipur.

Asserting that no country in the world chased short-term inflation target ignoring domestic and global developments, Rajan said the central bank would target medium-term inflation, which was flexible.

“As we want to achieve this objective, we will give a time to reach it. If we go off track, we will recalibrate the objective within the medium-term so that I don’t have to achieve tomorrow but try to get back to it over the medium-term,” he said.

Noting that the central bank had a role in controlling inflation, Rajan said the RBI was not going to close shop and go home.

In an interview to a national news channel Friday, Rajan said the RBI could not “flip-flop” on interest rates with every rise or fall in inflation and would wait for a stable low price scenario.

The central bank has retained the repo rate – or theinterest banks pay when they borrow money from the RBI to meet their short-term fund requirements – at eight percent since January despite clamour for its reduction by industry and the government after the wholesale price index (WPI) based inflation fell to zero and retail inflation declined to a record low of 4.38 percent in November.

The status quo in key policy rates mean the equated monthly installments (EMIs) on home, auto and other loans would remain unchanged as these rates determine lending and borrowing rates of the commercial banks.

On the debt waiver schemes for farmers, Rajan said: “Studies had shown that debt waiver programmes have been ineffective, constraining credit flow to farmers after their loans were waived off.”

Concerned over farmers’ suicides, arising partly out of their inability to repay loans, he said there was a need to study the sensitive issue to find out if they were caused by indebtedness.

“It is worth examining to ascertain if farmers’ suicides are caused by indebtedness in the farm sector or other factors,” Rajan said.

He recalled that loan waivers were declared for farmers in Andhra Pradesh after cyclone Phailin made landfall in October 2013.

Banks had a combined exposure of Rs.1.3 lakh crore to the farm sector in both the neighbouring southern states.

Though the Telangana government, which came into being in June 2014, paid 25 percent of the waived amount to the affected banks, the Andhra Pradesh government has not remitted its due amount till date.

The first UPA government announced in early 2008 an agricultural debt waiver and debt relief scheme under which Rs.52,516 crore due from 369 lakh small and marginal and 60 lakh big farmers across the country were waived off.

The comptroller and auditor general, however, found out later that several ineligible farmers benefited from the central government’s debt waiver scheme while many deserving farmers were left out.

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