India: Modi govt wants RBI rate cut before Mar 18

  • Impatient for faster economic growth, India’s government is lobbying for a reduction in official interest rates in coming months as it expects inflation to stay close to a 4% target, finance ministry officials said.
  • The finance ministry, according to officials, wants a rate cut sooner than that, putting a focus on the MPC meeting on 5 – 6 Dec 17, or when it next convenes in Feb 18.
  • Minutes from the Oct 17 meeting show RBI Governor Urjit Patel flagging risks to the inflation outlook, and the need for more evidence to show whether headwinds holding back economic growth were “transient or sustained”.
  • On 30 Nov 17, India will release GDP data for 3Q17, having seen economic growth slow to a three year low of 5.7% in 2Q17. The weak growth means 3-1/2 years into his 5-year term, Prime Minister Narendra Modi is falling a long way short of his promise of a dynamic economy to create jobs for the millions of young Indians joining the labour force each year.
  • His government can’t afford to boost public investment without endangering the commitment to fiscal consolidation that helped persuade Moody’s Investors Service this month to award India its first sovereign credit rating upgrade in nearly 14 years.
  • That leaves most of the pressure on the RBI to loosen monetary policy in order to revive currently anaemic private investment. A finance ministry spokesman declined to comment on its discussions with the RBI. The central bank also did not comment.
  • As a result of the new GST harmonising central and state levies, the finance ministry expects lower prices for some 200 goods to subdue retail inflation, which had struck a seven-month high of 3.58% in Oct 17.
  • Surjit Bhalla, a member of the Prime Minister’s Economic Advisory Council, aired his impatience with the stalling. “The MPC has been way behind its own curve, its own stated goals,” he wrote in the Indian Express newspaper, noting inflation had stayed below target for last 12 months.

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