Rate cut to boost liquidity, achieve near 8% growth in FY17: FinMin

The Finance Ministry on Tuesday said the 0.25% rate cut by the Reserve Bank will inject liquidity in the system and help achieve closer to 8% growth in the current fiscal.

Finance Secretary Ashok Lavasa said RBI and the government are on the same page with regard to inflation target and the government is taking all measures possible to keep inflation within the range of 2-6%.

"The RBI policy will boost liquidity in the system... On the whole, this is a decision which will go down well with all sections of the economy," he told reporters here.

He said both RBI and the government are in sync on the inflation target. The government has notified an inflation target of 4%, with an upper and lower tolerance band of 2%.

Talking about the impact of the Pay Commission recommendation on inflation, Lavasa said while it will effect some price increase, domestic consumptions will also grow.

As for GDP growth, Lavasa said: "We have been also saying the economy will inch closer to 8% growth. What exactly that number would be would be difficult to say, but certainly we are looking at better times."

In its monetary policy today, RBI has projected a growth rate of 7.6% in the current fiscal.

NITI Aayog Vice-Chairman Arvind Panagariya tweeted: "A very welcome move by RBI. The positive and optimistic narrative by it will help boost investor confidence."

A very welcome move by the RBI. The positive and optimistic narrative by it will help boost investor confidence

— Arvind Panagariya (@APanagariya) October 4, 2016

In the first monetary policy review under RBI Governor Urjit Patel, the interest rate was today cut by 0.25% to a 6-year low of 6.25% in a unanimous decision by the new rate-setting panel MPC.

Asked that banks have not passed rate cut benefits to borrowers, Lavasa said: "It depends on the banks. Banks take their own decision based on market sentiment."

Lavasa said RBI deserved to be complemented as it has maintained the liquidity in the market well even after handling the $20 billion worth FCNR bond redemption. "RBI has managed that position well and we have to be satisfied about that," he said.

In its fourth bi-monthly monetary policy of this fiscal today, RBI said liquidity conditions have remained comfortable in the third quarter, with the Reserve Bank absorbing liquidity on a net basis through auctions.

"Liquidity was injected through open market purchases of Rs 20,000 crore in line with the system's requirements," RBI said.