Reserve Bank of India Governor Raghuram Rajan on Monday said while growth is showing signs of picking up, it is still below the level the country is capable of.
On inflation, however, the outgoing Governor said projections are still at the upper limit of RBI’s inflation objective. “Economic growth, while showing signs of picking up, is still below levels that the country is capable of. The key weakness is in investment, with private corporate investment subdued because of low capacity utilisation, and public investment slow in rolling out in some sectors,” Mr. Rajan wrote in the foreword of the central bank’s annual report of 2015-16.
He said inflation projections are still at the upper limits of RBI’s inflation objective and room for rate cut will emerge as inflation falls further.
“With the Reserve Bank needing to balance savers’ desire for positive real interest rates with corporate investors’ and retail borrowers’ need for low nominal borrowing rates, the room to cut policy rates can emerge only if inflation is projected to fall further,” he said.
Mr. Rajan also said the willingness of banks to cut lending rates is muted and there is a reluctance to lend to industry and small businesses among the more stressed public sector banks compared to the private sector banks.
