New Delhi [India], February 23 : Reserve Bank of India (RBI) Governor Sanjay Malhotra on Monday said the revision of inflation targeting range following the CPI base year update is under examination.
However, he said, "while the methodological changes are material in terms of coverage, representativeness and volatility, they are 'not substantial' enough by themselves to necessitate a change in the inflation target."
During a press conference after the customary post-Budget meeting with finance minister, RBI governor responded to a query on whether the inflation targeting range would be revised following the CPI base year update, he said the matter is under examination.
"The RBI had earlier published a discussion paper and submitted its recommendations to the government. The decision on the target would be announced by the authorities," he said.
Governor Malhotra said the Reserve Bank's upcoming projections will reflect the revised base year and updated methodology of the Consumer Price Index (CPI) and Gross Domestic Product (GDP).
"The revised framework would be taken into account in the RBI's next set of projections to be released during the April monetary policy," he told.
He welcomed the updates, noting that the changes would better reflect Indian households' consumption expenditure patterns and help reduce volatility.
"The methodology also has been changed, which will help in better estimating CPI inflation," he said.
Further speaking on the capital adequacy, the RBI Governor said the banks have sufficient capital.
"Banks have sufficient funds and they are very well positioned to be able to meet their needs, as well as the credit needs of Indian economy," he said.
The Governor was responding to a question on challenges that banks are facing on keeping up on the deposit side amid credit-deposit ratios at almost record highs for several lenders.
He said, "The growth in deposit and credit to hand-in-hand. They are very highly correlated as every Rupee of credit creates a rupee of deposit. But there are business cycles, there are leakages as a result of which the growth rates for short periods of time the deposit and credit can be dissimilar."
"It is a natural thing. Deposit rates have gone up now because credit rates have gone up. Moreover, other than deposits, there are other means of borrowings that the banks rely on. The banks will be in full position to meet whatever are the credit needs," he said.
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