Rajan `Comforted’ by India Budget Gap, Mum on Possible Rate Cut

India’s central bank was “comforted that the government stuck with a road map to narrow the fiscal deficit, Governor...

India’s central bank was “comforted” that the government stuck with a road map to narrow the fiscal deficit, Governor Raghuram Rajan told reporters in his first public comments since the budget was unveiled two weeks ago.

The goal to reduce the fiscal gap to 3.5 percent of gross domestic product in the year starting April 1 “is a firm indication of government intent on fiscal consolidation,” Rajan said at a press briefing in New Delhi. The budget drew praise at a central bank board meeting on Saturday for fiscal responsibility, public investment and various reform moves, he said.

“How that feeds into monetary policy you have to wait and see,” Rajan said alongside Finance Minister Arun Jaitley. “On the policy date, or whatever dates we take action, we explain our actions at that point.”

Prime Minister Narendra Modi’s move to stick with previously determined fiscal targets stoked speculation among economists that Rajan would cut India’s policy rate immediately after the budget, similar to last year. Rajan said last month that he’d look at both the budget and inflation before making his next move.

‘Happy’ With MPC

India releases inflation data on Monday, and the next scheduled policy review is on April 5. A Bloomberg survey of 32 economists expects consumer-price inflation to slow to 5.52 percent in February from 5.69 percent a month earlier. Rajan has a target to bring it down to 5 percent by March 2017.

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Rajan also praised the composition of a planned monetary policy committee, saying he was “absolutely on board and happy with it.” A bill before India’s parliament proposes a six-member committee, with three members picked by the central bank and three by the government. The governor would break any ties.

“It is a very reasonable step forward,” Rajan said. “The monetary process will benefit from this structure.”

To contact the reporter on this story: Siddhartha Singh in New Delhi at ssingh283@bloomberg.net. To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Sunil Jagtiani

By: Siddhartha Singh

©2016 Bloomberg News

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