On growth, Rajan maintained the RBI’s median estimate of GDP expansion coming in at 5.5 percent for this financial year. The stance to be adopted by the Reserve Bank was keenly awaited, especially after the formation of a government perceived to be pro-growth at the Centre. The RBI Governor met Finance Minister Arun Jaitley the day he took charge at North Block and also called on Prime Minister Narendra Modi before the release of data that showed the economy expanded 4.7 percent in FY14 compared with 4.5 percent in FY13.

However, the persistence of inflation, especially on the food front, was one of the factors considered detrimental for the RBI in being accommodative in its stance. Fears of inadequate monsoon rains due to the El Nino factor may only add to price pressures in the future. Rajan also announced a reduction in liquidity provided under the export credit refinance facility to 32 percent of eligible export credit outstanding from 50 percent earlier. However, it introduced a special term repo facility of 0.25 percent of net demand and time liabilities to compensate fully for the reduction in access to liquidity under export credit refinance with immediate effect.

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