Decision to keep rates unchanged was expected: Chidambaram

Former finance minister P Chidambaram today said the RBI's decision to keep interest rates unchanged was expected and the government should build on what has been achieved.

"RBI's credit policy is entirely along expected lines. It is natural for the Governor to await the Budget and the stance of the government on fiscal consolidation," he said in a statement.

The Reserve Bank of India, in its Second Bi-Monthly Monetary Policy Statement for 2014-15, kept the key interest rate unchanged at 8%. It also cut the amount of deposits banks need to park in government securities, known as the statutory liquidity ratio, by 0.5% to 22.5% to improve availability of funds in the system.

Chidambaram, however, wondered whether the new BJP-led National Democratic Alliance government would move on the path of fiscal consolidation or allow the fiscal deficit to rise.

"Will the government follow the Kelkar recommended path and affirm the Budget estimate fiscal deficit of 4.1% for 2014-15? Or will the government take the advice of Arvind Panagariya (wrong advice in my view) and allow the fiscal deficit to rise? This is the million dollar question," he said.

However, he said the government could take comfort from core sector growth figures for April and passenger vehicle sales in May.

The output of eight core industries increased 4.2% in April, while domestic car sales saw an upswing last month with major firms Maruti Suzuki, Hyundai, Honda and Ford reporting good growth.

"There is an opportunity for the government to build upon what has been achieved," Chidambaram added.

Commenting on the RBI policy, KPMG (India) Partner and Head of Banking Practice Harshvardhan Bisht said the central bank has adopted adopted a 'wait and watch' policy by keeping rates unchanged.

"We anticipate that in the future, a strong fiscal consolidation plan along with constructive measures in the supply side by the new government will decide the direction of the interest rates," Bisht said.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.
Image CAPTCHA
Copy the characters (respecting upper/lower case) from the image.

EDITORIAL OF THE DAY

  • Time and tide are ripe for megaplans such as Sagarmala

    To say that India’s infrastructure is in urgent need of upgrade would be to state the obvious.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Urs Schoettli

China looks to India for balance

Almost a third of the total world population lives in ...

Zehra Naqvi

Love and its stories

People must have bread. They can live without stories. No, Hameeda, ...

Dharmendra Khandal

Tiger in urban landscape

Ranthambhore is in a no-win situation. Just a few days ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture