RBI rate cut contingent on low inflation: Rangarajan

Proper regulation necessary for financial innovation, he says

The RBI rate cut in the monetary policy review on March 19 will depend on inflation, said the Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan. Rangarajan was speaking at the International Chamber of Commerce (ICC) Asia Pacific CEO Forum 2013 in Delhi.

In the monetary policy review on January 29, the RBI had cut the repo rate by 0.25%, and the Cash Reserve Ratio (CRR) by 4%. The Wholesale Price Inflation (WPI) had declined to 6.62% in January, from 7.18% in December. But, the Consumer Price Inflation (CPI) had risen to 10.79% in January, from 10.56% in December. Many economists expect an interest rate cut on the March 19th monetary policy review.

Rangarajan said that proper regulation is necessary for financial innovation. “But, too much regulation will impede innovation. The Stiglitz commission report says that some innovation has a clearly negative impact.  But, it would be wrong to classify all innovation as negative.” he added.   

He also stated that RBI will take a final decision on allowing companies with real estate operations applying for banking licenses. “It is a question of deciding who are fit and open. Who will they (RBI) give licence will depend upon number of factors", Rangarajan said.  In February, the RBI had issued guidelines for new bank licences.  

Mian Muhammad Mansha, the richest Pakistani, and the Chairman and CEO of the MCB Bank Limited was also a speaker at the forum. He said that his bank was privatized in 1991 when Pakistan had a very growth and reform oriented government. MCB bank is Pakistan’s fourth largest bank. “To take excessive risks, we should get the government out of the business and have more privatization and competition.”, Mansha said.