Rajan optimistic about meeting inflation target of 5%

RBI Governor Raghuram Rajan today exuded confidence that inflation target of 5 per cent for March 2017 will be met as also that there will be no market disruption on account of foreign deposit redemptions worth over USD 20 billion.

Rajan, who demits office on September 4 after completion of 3-year tenure, also said that today's was likely the last of the Governor-led monetary policy reviews, as the future ones will be carried out by the six-member panel.

"We are within the inflation band given to us by the government and expect to be around 5 per cent CPI inflation target by March 2017, absent unforseen eventualities... Broadly, we are comfortable that we should be reaching the 5 per cent target," Rajan told reporters after announcing the third bi-monthly review of the monetary policy, 2016-17.

Under its agreement with the government, RBI is committed to anchoring retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a 'glide path' to achieving the median mark.

Rajan said today's policy review, his last as the head of RBI, will most likely be the final one done by the Governor as the Monetary Policy Committee (MPC) will take over from the next policy announcement scheduled for October 4.

The government has already started the process of identifying its three members for the panel, while RBI has nominated executive director Michael Patra to be its nominee on it, in addition to the Governor and the Deputy Governor in-charge of the monetary policy department Urjit Patel.

The Governor will have a casting vote once the country shifts to the panel system.

"The MPC is a fundamental institutional reform which modernises our monetary policy framework and builds a strong platform for a strong and sustainable growth," Rajan said, adding its collateral benefits besides lower inflation will include stable currency and higher real interest rates.

Meanwhile, with the system staring at an outflow of USD 26 billion in foreign currency deposits (FCNR-B) raised during the time when the rupee was bleeding in September-November period of 2013, following the 'taper tantrums' in the summer of that year, Rajan sought to assuage concerns of the banking system saying RBI will ensure there is no market disruption because of it.