Service inflation is a matter of worry, shows supply constraints

1. Service inflation is a matter of
worry, shows supply constraints

2. Contd…
Even as he spoke of a recovery being under way, RBI governor
Raghuram Rajan
took pains not to take any credit for it. The governor said that growth
was due to a host of reasons, including the feel-good factor brought in
by the government and fresh public investments. In an interaction with
the media, he spoke on a host of macroeconomic issues...
On keeping rates soft
We are still accommodative. That is very clear. We have provided all the
liquidity the market needs. If we find on a sustained basis liquidity
being absorbed by the market, we will provide longer-term liquidity.

3. Contd…
On Fed rate hike
Our sense is that a Fed hike is probably even more widely anticipated
than our statement today. There are probably some residual
uncertainties about what the Fed will do. My sense is after an initial
bout of volatility, Indian markets should stabilize and get through.
On service inflation
Services inflation is a source of concern. It largely reflects the supply
constraints in our economy . Reasonable quality education and
reasonable quality health care are relatively in short supply , which is
why we have been seeing price inflation. That is why we have been
saying that this is not just all about food.

4. Contd…
On bad loans
We have given a number of facilities to banks to improve their balance sheet.
Hopefully , going forward, the additional powers and additional recognition
that banks will now be doing will clean up their balance sheet in a significant
way so that they will be able to grow and lend going forward. I want to put
something like March 2017 on the table as when we hope that clean-up will
have been done.
On exchange rate -
The one exchange rate that al ways matters to people is the , dollar-rupee. At
the same time, as they are saying dollar-rupee is weakest in the history of
the rupee, turns out we are pretty strong because we have appre ciated
against the euro, versus the yen and many Asian cur rencies. But it does
make the dialogue a little more difficult.

5. Contd…
RBI retains govt's 7.4% growth forecast with downward bias
New Delhi: The monetary policy unveiled by RBI reflects a very balanced approach, said economic
affairs secretary Shaktikanta Das on micro-blogging site Twitter.
RBI retained the government's growth projection of 7.4% for 2015-16 but with a downside bias. It
said the outlook for agriculture is subdued, in view of both rabi and kharif crop prospects being hit
by monsoon vagaries. While there are areas of robust growth in manufacturing such as capital
goods and passenger cars, weak rural and external demand holds back stronger overall growth.
While prospects for a revival in service sector activity have been boosted by optimism on new
business orders, pockets of lacklustre activity such as construction weigh on the overall outlook.
“The step-up in public capital spending and the easing stance of monetary policy provide the
enabling environment for a revival in private investment demand, supported by lowering of input
prices and improving conditions for doing business,“ said the central bank.
It said the implementation of the Pay Commission proposals, and its effect on wages and rents, will
also be a factor in RBI's future policy-making deliberations, though its direct effect on demand is
likely to be offset by appropriate budgetary tightening as the government stays on the fiscal
consolidation path.

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