5 key takeaways from Guv's speech

 

- Manika Premsingh

On his first day as RBI governor, Raghuram Rajan made a speech that is as articulate as it is informative. 

A number of measures were announced to enhance the functioning of the financial system in the country. There was also big picture speak, that gives us some idea on what is top of mind for RR at present. Here are, according to us, the five issues that are important to him.

#1.Expect unanticipated policy actions:  He’s not saying that policy will necessarily be unanticipated, but given the current times and the need for agility, we can safely expect it on occasion. In his own words: “That is not to say we will never surprise markets with actions. A central bank should never say “Never”!”, even if “…the public should have a clear framework as to where we are going, and understand how our policy actions fit into that framework.”

#2.CPI and currency markets as key policy triggers:  Even though the WPI has come off in the recent months, CPI inflation still remains high. The governor has mentioned inflation management more than once in his speech, so we should expect more inflation fighting from the Reserve Bank. We should also see more hands on currency management, which is much needed at present! To quote: “The primary role of the central bank, as the Act suggests, is monetary stability, that is, to sustain confidence in the value of the country’s money. Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.”

#3. Kingfishers of the world, be vary: RR will quite possibly crack down (to whatever extent possible) on failed big business and its sometimes questionable ways of staying afloat. As he says: “Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalize their failed ventures.”

#4. Efficient financial management for households: Not only is the governor interested in protecting the common person’s savings from being eroded by rising prices, he also wants to ensure that people are able to pay their bills far more conveniently than is now the case and also have greater access to finance. Evident from: “households have expressed a desire to be protected against CPI inflation. Together with the government, we will issue Inflation Indexed Savings Certificates linked to the CPI New Index” and “we will implement a national giro-based Indian Bill Payment System such that households will be able to use bank accounts to pay school fees utilities, medical bills, and make person to person transfers electronically. We want to make payments anywhere anytime a reality.”

#5. Popularity is hardly the objective: Good to know. While we don't want a governor who will always be at loggerheads with the RBI itself or the centre (since it means slower and challenged policy environment), we certainly don't one who is likely to get influenced by any vested interests or pure public sentiment.  Here is what he says about the matter: “The Governorship of the Central Bank is not meant to win one votes or Facebook “likes”. But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism”.

The new governor parts with an allusion to Rudyard Kipling's poem 'If", an interesting choice that probably indicates his realisation that this battle could get tough. For those of you who would like to read it, here is a link to R.K's “If”.