Jalan mum on bank rate cut

Jalan mum on bank rate cut

NEW DELHI, FEB 15: Optimistic of a six per cent growth, Reserve Bank governor Bimal Jalan said today the bank rate would not be directly affected by any cut in interest rate cuts on small savings but was silent on reports of a possible rate cut in the near future.

Even if the government decides to reduce small savings rates, Jalan said there would be no "direct impact" on bank rate. "I don't want to make any comment," he said when asked whether RBI would reduce rates following the rate cut by the US central bank. Allaying fears that the Gujarat earthquake would drastically bring down the economic growth rate, Jalan said it would be around six per cent this fiscal and the prospects of a higher growth of 7-8 per cent in the medium term were "excellent".

"The GDP growth, I think, we are expecting about six per cent or so," Jalan said when asked about the possible impact of Gujarat earthquake on the economic growth this year. Speaking at the Ficci seminar on insurance, he said despite the downturns and fluctuations, India has achieved an average growth of six per cent in the last 10 years.

"Leaving aside the cyclical fluctuations, the medium-term prospect of growth is excellent... If the economy grows at about 7-8 per cent, then there are tremendous opportunities for the financial sector. India will be a thriving and prosperous market," the RBI governor told the participating insurers. He said the country had managed the external sector well and has become resilient with exports growing at over 20 per cent.

Jalan said the inflation rate, leaving apart the oil component, was "comfortable" at four per cent. The overall inflation rate is currently at over eight per cent. Asked whether government borrowing is expected to go up from the targeted at about Rs 1,17,700 crore following the catastrophe, he said "I have no idea. It is for the government to decide."

He said that the RBI has already relaxed the ways and means advance (WMA) limits for Gujarat. "We have already done it. There is no WMA limit for Gujarat," he said. On the future course of path, Jalan said the apex bank was looking forward for a debt market that would act in a competitive way and serve the country's infrastructure sector.

"The RBI has a key responsibility as debt manager to develop the debt market so that private and corporate sector can access it," he said, adding that the insurance industry was capable of providing long-term funds in the market. In this context, Jalan said banks are being encouraged, subject to certain criteria, to enter the insurance sector in various forms.

On the regulatory aspect, the apex bank chief indicated that the country was evolving a mechanism of having a super regulator instead of having separate regulators for banking, insurance and capital markets. "We have now started a mechanism whereby there is close coordination between RBI, sebi and irda. Over a period of time, we will see whether we need a single authority," he said.