New Delhi / Bloomberg
Indiaâ€™s central bank was â€œcomforted” that the government stuck with a road map to narrow the fiscal deficit, Governor Raghuram Rajan told reporters in his first public comments since the budget was unveiled two weeks ago.
The goal to reduce the fiscal gap to 3.5 percent of gross domestic product in the year starting April 1 â€œis a firm indication of government intent on fiscal consolidation,” Rajan said at a press briefing in New Delhi. The budget drew praise at a central bank board meeting on Saturday for fiscal responsibility, public investment and various reform moves, he said.
â€œHow that feeds into monetary policy you have to wait and see,” Rajan said alongside Finance Minister Arun Jaitley. â€œOn the policy date, or whatever dates we take action, we explain our actions at that point.”
Prime Minister Narendra Modiâ€™s move to stick with previously determined fiscal targets stoked speculation among economists that Rajan would cut Indiaâ€™s policy rate immediately after the budget, similar to last year. Rajan said last month that heâ€™d look at both the budget and inflation before making his next move.
â€˜Happyâ€™ With MPC
India releases inflation data on Monday, and the next scheduled policy review is on April 5. A Bloomberg survey of 32 economists expects consumer-price inflation to slow to 5.52 percent in February from 5.69 percent a month earlier. Rajan has a target to bring it down to 5 percent by March 2017.
Rajan also praised the composition of a planned monetary policy committee, saying he was â€œabsolutely on board and happy with it.” A bill before Indiaâ€™s parliament proposes a six-member committee, with three members picked by the central bank and three by the government. The governor would break any ties.
â€œIt is a very reasonable step forward,” Rajan said. “The monetary process will benefit from this structure.”
In a speech later on Saturday, Rajan emphasized the need for India to maintain macroeconomic stability, saying it would be beneficial for a stable rupee. He said the central bank intervenes only to smooth volatility, and called for continued efforts to boost productivity through removing bottlenecks and making it easier to do business. “The recent central budget emphasized fiscal prudence and adhered to past commitments, even while allocating resources towards capital spending and focusing on structural reforms, especially in agriculture,” Rajan said, according to prepared remarks. “The subsequent fall in government bond yields suggests that market investors were calmed by the governmentâ€™s overall message.”