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Borrowing will become costlier for defaulters: RBI's Rajan

RBI Governor Raghuram Rajan added the Indian rupee had stabilised "somewhat", but said there was no room for complacency. He also called on the government to continue its efforts to contain the fiscal deficit and said raising subsidised diesel prices to market levels would help.

December 11, 2013 / 17:36 IST

The focus of the Reserve Bank of India (RBI) remains on inflation, Governor Raghuram Rajan said on Wednesday, adding growth seems to be stabilising, although it was too early to call a bottom.

With loan defaults becoming an increasingly bigger problem, Raghuram Rajan said RBI will move to make borrowing costlier, especially for uncooperative and willful defaulters.

Raghuram Rajan added the Indian rupee had stabilised "somewhat", but said there was no room for complacency. He also called on the government to continue its efforts to contain the fiscal deficit and said raising subsidised diesel prices to market levels would help.

"Our effort is firmly on controlling inflation," Rajan said during a speech to the Delhi Economic Conclave organised by India's Finance Ministry.

"Growth is stabilising though it is too early to say it has bottomed at this point," he also said.

The RBI has raised interest rates by a total of 50 basis points since September to contain inflation. Since the moves, data has shown a slight recovery in economic growth, although it remains hovering close to decade lows.

Rajan also reiterated the central bank would continue to focus on developing markets, adding the RBI was also keen to strengthen debt markets and introduce more products.

Rajan also said the RBI would introduce measures to improve liquidity and depth in government bonds, known widely in India as G-secs.

"We will roll out more measures to improve liquidity and depth of G-sec market," he said.

Financial market development is seen as a priority for the central bank governor.

India's cbank will soon introduce interest rate futures on 10-year government bonds and has also allowed exchanges to launch these derivatives in other smaller tenor securities in the future.

first published: Dec 11, 2013 12:17 pm

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