India’s rockstar Reserve Bank of India Governor, Raghuram Rajan, delivered his last Monetary Policy on Tuesday with the same finesse and professionalism with which he has held office over the past three years.

The latest policy statement continued to stress liquidity management, a systemic clean-up of the banking sector, and the fight against inflation, which were the hallmarks of Rajan’s tenure.

He left unchanged the repo rate, the interest rate at which the central bank provides short-term liquidity to banks, at 6.50 per cent, as was widely expected, due to upside risks to the RBI’s projected retail inflation target of 5 per cent for March 2017.

When Rajan came on the scene as RBI Governor in 2013, India was still warming up to him. Here was an academic, who had previously been with the IMF, who had correctly predicted the 2008 financial crisis. He was calm and collected, even when the inflation rate touched nearly 10 per cent.

Over these years, he switched the headline inflation rate to the metric that consumers actually deal with, and then stabilised it.

The Governor’s focus has been on the transmission of rate cuts, rather than rate cuts. Despite the RBI cutting the repo rate by 150 basis points since January 2015 and providing easy liquidity, Rajan observed that banks have passed on only a slice of the previous rate cuts to borrowers.

“Earlier, some bankers said it was the lack of liquidity that was holding rates high, now I hear from some that it is fear of the foreign currency non-resident (bank) — FCNR(B) — deposit redemptions that is making them reluctant to cut rates. I have a suspicion that some new concern will crop up once the FCNR(B) redemptions are behind us,” Rajan noted wryly.

The RBI held out the assurance that it would continue with both domestic liquidity operations and foreign exchange interventions to enable management of FCNR (B) deposit redemptions without market disruptions.

Bank NPAs One of the highlights of Rajan’s tenure has been the doggedness with which he has pursued banks to get them to clean up their books. Assessing the impact of his efforts, Rajan said the RBI is comfortable with the (non-performing assets) recognition process.

“Banks have certainly taken a lot of steps on balance-sheet clean-up. The culture of cleaning up seems to be well-embedded,” he said, adding that he didn’t see any reason why there should be any backtracking on this by banks once his term ends in September.

Impact of GST Rajan observed that it is not correct to assume that GST implementation would necessarily stoke inflation. “It is premature to talk about the inflationary impact of GST. The experience of other countries shows there was an inflationary impact, but it was short lived,” he said.

Parting shot During the past three years, Rajan has steered clear of demands for a rate cut, drawing criticism from sections of the industry and some politicians.

On Tuesday, he showed he remained unfazed by those who threw bricks at him. “ Critics are there all the time. There are also people who send me messages in the plane from the back, anonymous notes, saying ‘thank you for what you are doing’.

“I have enjoyed every minute of it, partly because every day when my fellow colleagues at the RBI and I, if we are at work, we manage to move the needle forward a little bit at the end of the day. We leave the office saying we did something,” Rajan said.

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