Raghuram Rajan, Governor of Indian Central Bank will keep the interest rate at one-and-half years high to counterbalance Asia’s fastest inflation, following raising it 3 times since last year.
The rate will be around 8% stated Bloomberg analysts; the new policy review is going to be unveiled tomorrow. Arun Jaitley, the finance minister has joined hands with the governor to fight against inflation, when both met last week after Narendra Modi was sworn in as the new Prime Minister. Now, everyone is aware of the control that Mr. Modi has got, over parliament to narrow the budget deficit, increasing the national economy. It has been speculated that Rupee (Indian currency) would surge and the stock market will be up by the year end. India needs recovery badly to be competitive and Arun Jaitley said he would make minimizing the financial shortfall a top priority during the next budget meeting to be conducted in July.
Scotland Group Plc senior economist, Gaurav Kapur said – “Modi’s government is unlikely to tamper with the RBI’s operational independence as the Central Bank has great credibility under Rajan.” Kapur even told to lower the rates; the governor should make a credible and reliable fiscal plan from to cut short deficit, boosting long-term growth.
The stock index climbed high last month, while bond yields fell, though it’s indicated that the economy will boost as Mr. Modi has taken the golden seat. The currency dropped 0.1%, after reaching up 2.1% last month. Soon after Modi became Prime Minister, rupee’s value grew, indicating that it would improve eventually in future either. Though it sank slightly yesterday, Bloomberg analysts predict it to pick up soon.
Arun Jaitley posted on Facebook – “We must move towards an era of fiscal discipline where we can reduce the fiscal deficit, contain inflation and improve upon our growth rates”
Governor did a fantastic job in April, keeping the borrowing costs under control; it’s expected to hit 8% by next January. He suggested that PM or parliament should set an average-term inflation target, proposing 4% (2 percentage points) target in 2016. Fed Gov. can give suggestion to the central bank regarding public interest rates. This high inflation is impacting the employment sector and it should be lowered to build a more competitive corporate atmosphere.
Subdued economic growth and higher borrowing costs has hurt some firms, such as auto manufacturers. The new policy is said to reduce budget deficit and food inflation.