NEW DELHI: Reserve Bank of India (RBI) Governor Urjit Patel has advocated the need for continued smooth transmission of monetary policy and mooted a high-level working group to look into the legal framework as well as swift dispute resolution. He also suggested a unified regulator for International Financial Services Centre in (IFSC).
Patel’s comments come three weeks ahead of the Budget presentation by Finance Minister Arun Jaitley on February 1. The government is looking to achieve a 6.4 per cent combined central and state fiscal deficit.
The RBI governor’s call for ‘good policy housekeeping’ as key for stable macroeconomic environment is likely to be acknowledged by the policy makers and senior bureaucrats involved in Budget preparations.
Speaking at the Vibrant Gujarat Global Summit on Wednesday, Patel also highlighted the need to achieve the medium-term consumer-price based inflation target of 4 per cent. While seeking a “fluid transmission” of monetary policy, he wanted the government to infuse adequate capital in the banking system.
He cautioned the government against subsidising credit or providing credit guarantees, as they add to the government’s debt. Patel stressed that keeping inflation low on a durable basis is an ’essential prerequisite‘ for meaningful interest rate structure to increase investments for better growth.
Under the new monetary policy framework, RBI is to keep a tab on a notified target for retail inflation of 4 per cent (plus or minus 2 per cent), as it continues to press for smoother transmission of monetary policy, he said.
“Guarantees per se at the end of the day have limited utility in solving important sector issues,” he said.
The RBI governor also made a case for continuous support towards recapitalisation of public-sector banks arguing that “a well-capitalised domestic banking system enhances the comfort of stakeholders to conduct business in the offshore IFSC as well.”