Finance minister Arun Jaitley had announced the government's intention to set up a PDMA in his Union Budget last month in order to bring external and domestic debt under one roof. Photo: Pradeep Gaur/Mint
At a press conference after addressing RBI's board meeting, Jaitley reiterated that there is no "disconnect" between the central bank and the finance ministry. He was answering a question on differences between the RBI and the government on issues such as the formation of the monetary policy committee, the creation of a public debt management agency and the government's decision to include a clause in the finance bill which will take out government bonds from the purview of the central bank.
"There has always been and shall continue to be a regular continuous interaction between the central bank and the government. All issues that concern both are regularly discussed. There is a free and frank discussion and no possibility of a disconnect," Jaitley said.
"As far as the proposals in the finance bill are concerned, they are before Parliament and I would not like to comment," he added.
When asked about the RBI's views on the formation of a debt management agency, Rajan stressed that the PDMA should be a truly independent body.
"A PDMA, independent of the central bank and the government is desirable. It puts a discipline in the government debt process," he said.
Jaitley had announced the government's intention to set up a PDMA in his Union Budget last month in order to bring external and domestic debt under one roof.
Rajan also said that the formation of the monetary policy committee will take some time but did not comment on the constitution of the committee.
The RBI and government had signed a monetary policy framework agreement last month under which the central bank is bound to bring down retail inflation to 6% by January 2016 and within 4% with a band of +-2 percentage points in the subsequent years.
Rajan added that future interest rates cuts will depend mainly on the pattern of inflation in India and not much on the policy moves of the US Federal Reserve.
US Federal Reserve's decision on interest rates will be a factor but it is not going to be the primary factor in deciding whether the RBI will further cut rates, Rajan said.
The central bank has cut policy rates twice by 25 basis points each from January.
The governor said that the impact of unseasonal rains on inflation will depend on which particular food crops have been affected.
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