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RBI to focus on inflation; borrowing to turn costlier for defaulters: RBI Governor

11 Dec 2013 Evaluate

Amid rising concerns over the deteriorating macro-economic indicators of the country, the Reserve Bank of India (RBI) Governor Raghuram Rajan highlighted that the focus of the central bank will remain on inflation. Mentioning that growth in the country seemed to have stabilised, however, cautioned that it was too early to say that it had bottomed out. Indian wholesale price index (WPI) accelerated to eight-month high at 7% in the month of October on y-o-y basis. Rising inflation in the country has become a concern for the central bank, which has been continually raising the policy rates over the past few months in order to trim the inflation. Meanwhile, Indian economy grew at 4.8% in July- September quarter as against the four-year low figure of 4.4% in April-June quarter of current fiscal.

By adding further, Rajan underscored that Indian rupee has stabilised, but said there is no room for complacency and also suggested the government to continue its efforts to contain the fiscal deficit. The governor further reiterated that the central bank is also keen to strengthen debt markets by introducing more products and would introduce measures to improve liquidity and depth in government bonds, widely known as G-secs in India. Referring to the rising non-performing assets of the banks, the RBI governor proclaimed that loan defaults has become a problem and the central bank will take steps soon to make borrowing costlier, especially for uncooperative and willful defaulters.

The governor has also expressed the need to improve the financial system by clarifying monetary policy framework, strengthening the banking structure through new entry or bank expansion and broadening financial markets, among others. The RBI will soon introduce interest rate futures on 10-year government bonds and has also allowed exchanges to launch these derivatives in other smaller tenor securities in the future.

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