Business Economy

Economists seek further rate cut

A group of economists who met Reserve Bank of India Governor Shaktikanta Das on Tuesday cited concerns over economic growth and suggested further reduction of the interest rate to boost economic activity.

The meeting was part of consultations prior to the monetary policy, which will be announced on April 4. Apart from Mr. Das, other senior RBI officials were present.

“Economists have suggested further reduction in interest rate which is required to boost economic growth which is still sluggish,” said an official who was part of the meeting.

According to officials present in the meeting, most economists expect GDP growth for the next financial year to be below 7%.

At the same time, retail inflation — the central bank’s main yardstick for policy-making — is expected to be under 4%, the medium term target of the RBI.

“While the economists have noted sticky core inflation and benign food inflation, the headline inflation is expected to remain well within the central bank’s target range,” said an official.

Economists also highlighted uncertain global growth which might prompt the Federal Reserve to hold interest rates.

Domestic issues

On the domestic front, they said the NBFC crisis was not yet completely behind, the rural sector was still sluggish, and overall, there were uncertainties due to the general elections, which was holding back private sector investment.

In the last policy meeting in February, the RBI had reduced interest rate by 25 bps to 6.25% for the first time since August 2017, in a bid to revive economic growth. This, as it projected retail inflation to be below its target of 4% for the next 12 months.

The RBI projected growth for the next financial year at 7.4%. The central bank also revised inflation projection downwards to 2.8% for January-March, 3.2-3.4% for the first half of next financial year, and 3.9% for the third quarter 2019-20, assuming a normal monsoon.

In the last policy, Mr. Das emphasised on acting ‘decisively and timely’ to address growth concerns once the objective of price stability was achieved.

Apart from interest rates, several other issues came up for discussion, including the recent decision to inject rupee liquidity into the system through long-term foreign exchange buy/sell swap.


Leave a Reply

Your email address will not be published. Required fields are marked *