Business Economy

Monetary policy committee sees further slowdown in growth

There could be more interest rate cuts by the Reserve Bank of India (RBI) as some of the members of the monetary policy committee have observed that growth is yet to bottom out, even as two members pointed out rising inflation expectations.

“This pronounced cyclical downswing suggests that the state of the economy will likely get worse before it gets better,” M.D. Patra, one of the internal members, said.

The minutes of the October monetary policy of the RBI was released on Friday.

The RBI had reduced interest rates by 25 bps in the policy meeting, taking the total rate cut since February to 135 bps.

“High frequency data on indicators for estimating quarterly growth suggest that the growth slowdown may continue in the second quarter of 2019-20. Any substantial recovery is likely only in the Q3 of 2019-20,” external member R.H. Dholakia, who had voted for a 40 bps rate cut, said.

Most members appreciated the government’s effort to revive the economy, particularly the move to cut corporate tax rate.

“The government has also initiated several measures in recent months which, together with monetary easing by the Reserve Bank, are gradually expected to work their way through the real economy,” RBI Governor Shaktikanta Das said, adding that there was also a need to be watchful of the fiscal situation.

Two external members, Pami Dua and Chetan Ghate, noted the rising inflation expectations.

“Since the last review, there has been a 40 bps increase in the three month ahead inflation expectations of households [now at 8%], and a 20 bps increase in the level of one year ahead inflationary expectations [to 8.1%]. Households’ current perception of inflation also increased by 50 bps to 7.1%,” Mr. Ghate said.

“While the actual inflation scenario and the outlook for inflation seem benign, some upside risks are prevalent, such as the possibility of supply disruptions in the global crude oil market,” Ms. Dua said.

Retail inflation rose to a 14-month high of 3.99% in September due to costlier food items.

Source: thehindu.com

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