India: RBI Chief Says India’s Interest-Rate Stance Now Depends on Data

  • India’s central bank Governor Shaktikanta Das said policy makers have effectively delivered more easing than the three interest-rate cuts in 2019 suggest, signaling a more cautious stance on future action.
  • In one of his first interviews with media since taking office seven months ago, Das said he sees signs of a recovery in economic growth and further monetary policy steps will depend on incoming data.
  • The central bank’s switch to an accommodative stance in Jun 19 in itself amounts to a 25 basis-point cut, he said, on top of the 75 basis points of cuts since Feb 19.
  • The RBI has been the most aggressive central bank in Asia in 2019 to ease policy to support growth amid low inflation. A gloomy global outlook fanned by trade tensions has since prompted policy makers from Australia to South Korea to join the dovish camp.
  • “Parallel to that we have also ensured surplus liquidity in the system,” Das noted.
  • Das said while there’s a “case for banks to show better monetary policy transmission,” they can’t be forced to lower rates as many lenders are still recovering from stress caused by years of bad-loans problem.
  • The need now is to ensure a revival in domestic demand, Das said, adding that an improving monsoon, lower oil prices and an easing of a domestic credit crunch are positive.
  • As for prices, Das said a decline in core inflation can be seen as a positive development on the one hand, but also as reflective of a slowdown in demand.
  • “You cannot have a fiscal solution to long-term growth,” Das said. The country needs structural reforms, an enabling business environment and measures to improve supply chains in the farm sector to make the economy more competitive, he said.
  • Das said India won’t be as badly affected from the U.S.-China trade war in the short term as other economies that are more plugged into global value chains. But if those tensions are prolonged, they will have an adverse impact on India, especially on its exports, which contracted in Jun 19 for the first time in nine months.

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