‘Rate cuts likely after interim budget’

‘Rate cuts likely after interim budget’
Comment E-mail Print Share
First Published: Wed, Feb 04 2009. 12 15 AM IST
Updated: Wed, Feb 11 2009. 10 08 AM IST
New Delhi: The Reserve Bank of India may cut interest rates after February’s interim budget which gives a better sense of the country’s fiscal situation, having left them steady at a review last week, a top policy adviser said on Wednesday.
Revenue data showed direct tax receipts for April-January rose a slower-than-expected 12.5% from the first 10 months of 2007-09 as global economic turmoil and faltering domestic demand trimmed corporate profits.
That added to speculation the government would squeeze in some extra bonds auctions in the final weeks of 2008-09 to cover the gap caused by stimulus measures and tax cuts to shore up the economy and big-ticket spending plans announced when growth and revenues were stronger.
Suresh Tendulkar, chairman of Prime Minister Manmohan Singh’s Economic Advisory Council, expected the RBI would wait for the 16 February interim budget and then act again on rates.
“Possibly they will wait for the vote-on-account or interim budget to gauge the fiscal situation,” said Tendulkar in a telephone interview. “In the light of that, they may decide to cut rates.”
The RBI has cuts its key lending rate, the repo rate, by 350 basis points to 5.5% since October, but last week left rates unchanged at a policy review and urged commercial banks to pass on the benefits of its previous cuts.
Tendulkar said RBI should cut rates to reduce the cost of credit, and that would help boost confidence.
“In my view, cutting rates is desirable”.
Last week, RBI said the economy could grow at a six-year low of 7% or less in 2008-09, down from 9% last year, while the fiscal deficit could widen to at least 5.9% of gross domestic product.
Exports, which account for nearly 20% of India’s gross domestic product, are expected to plummet by more than a fifth in January as the global slowdown slashes demand.
Federal bond yields spiked to eight-week highs on Wednesday as investors worried about extra government borrowing, after a senior finance ministry official had said on Tuesday some may be announced in the interim budget.
The yield on the 8.24% 2018 bond hit an eight-week high of 6.49 percent on Wednesday morning. The bond’s yield had hit a lifetime low of 4.86% on 6 January, soon after the most recent RBI rate cut.
The government will unveil an interim or temporary budget as national elections are due by mid-May, and convention is that only the poll winner can present a full budget in an election year.
Comment E-mail Print Share
First Published: Wed, Feb 04 2009. 12 15 AM IST