Over to Arun Jaitley
A meaningful plan for lowering the fiscal deficit will give the central bank room to cut rates
Raghuram Rajan had already surprised the markets with a rate cut a little more than two weeks before the central bank’s scheduled monetary policy announcement. Naturally, there were low hopes of a second cut so soon after the first one. Rajan held rates on Tuesday.
This newspaper had argued even before the 15 January cut that the Indian central bank should wait till the budget to reduce interest rates. It would also give it time to watch how rapidly inflation is retreating. Rajan has less to worry on the latter front right now. Inflation is falling far more quickly than most expected a few months ago. Now much depends on the fiscal policy to be announced by finance minister Arun Jaitley on 28 February.
A meaningful plan for lowering the fiscal deficit will give the central bank room to cut rates: lower government spending will create room for more private spending. The big question: will Rajan cut again out of turn as soon as the budget is unveiled, rather than wait for 7 April?
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