ROOM FOR FURTHER RATE CUTS

BE/RBI/32/2019

The Governor of Reserve Bank of India, says that there is room for further interest rate cuts.  Let us see the details herein.

1. The inflation is said to be under control in line with the RBI’s target.
2. It is also said that Government has limited space for any fiscal expansion.
3. The price stability is said to be maintained well which is much below 4% which would continue for the coming 12 months.
4. The growth has also slowed down accordingly thus paving way for further interest rate cuts.
5. The current fiscal deficit of the Government is at 3.3
6. Also, the borrowings by Public Sector Undertakings and the fiscal deficit the space left for the Fiscal adjustment is very limited.
7. The RBI has projected the Gross Domestic Product (GDP) growth for the current fiscal at 6.9% in the range of 5.8 to 6.6% for the first half of 2019-20 and 7.3 to 7.5% for the second half.
8. Also a further cut in this expected after the October policy review even assuming the gross domestic product growth in the June quarter as the slowest during the last six years.
9. The RBI Governor also expects the US Fed’s latest rate cut would boost the inflow of funds into India through Foreign Portfolio Investment and also Foreign Direct Investment. The Fed lowered the policy rate by 25 basis points to a target range of 1.75 to 2%.

Governor’s further Views:

• RBI Governor also feels that the rise in Crude prices might not have significant on inflation.
• The monetary policy committee projected a Consumer Price Index (CPI) inflation at 3.1% for the second quarter of the current financial year and 3.5 to 3.7% for the second half of the year.
• Managing of the external sectors is a critical issue when there are lot of challenges and issues facing the economy.
• Under these circumstances, a prudent external sector management with a close and continuous vigil on areas of external vulnerability will be of great importance and will be closed watch the Reserve Bank of India.
• Also the Governor added that the outlook for India’s external sector management is a cautious optimism even if with some downslide risks which is faced at present.
• The continued slowdown of global economy and geopolitical tensions that is seen in the international trade are the main challenges that India is facing at present.
• Also, the volatility in the International crude prices continues to grow and thus is a risk for the current account balance through trade and remittances channel.
• The current account deficit of India stood at a comfortable level of 1.4% of the Gross domestic product and foreign exchange reserves at $ 429 billion provide sufficient cover for ten months of imports.