Future rate cuts depend on monsoon, crude prices, says Rajan

Reserve Bank Governor Raghuram Rajan today said the future trajectory of the monetary policy will depend on monsoon, the way the government manages shocks, if any, emanating from it and crude prices.
"As we get more confidence on the monsoon out-turn, the government reaction and energy prices, we will have a sense of what is possible on the policy front," Rajan told analysts and researchers on a call after cutting key rates by 0.25 per cent in the policy earlier in the day.
He was answering a question on forward guidance for the policy. Unlike other policy statements, the second bi-monthly statement does not explicitly make a mention on the guidance.

Elaborating on the rationale for today's cut and the move forward, the Governor said, "Going forward, a room may absolutely open up if the monsoons is better than currently expected, or if government actions mitigate any potential rise in food prices and if energy prices stay contained.
"Clearly, it is possible that more room may open up and we will take full advantage of it as and when we see room opening up," the Governor said.
Earlier, addressing reporters in the post-policy presser, the Governor had said the decision to cut is a calculative one, where the RBI has decided to "err" to boost investments and help the recovery process.

From a conservative perspective, the RBI would have waited for the monsoon to play out and then cut rate, he said.
Rajan also said the policy is formed with a view on the inflation trajectory for the future.
"We are not saying inflation today is high, that is a mistake that some people are making while looking at our commentary. We do acknowledge the fact that inflation today is below 5 per cent. But we have to determine the policy in a forward-looking manner wherein we have to estimate what it would be in the future and determine policy on that basis," the Governor said.