New Delhi: The new government at the Centre is likely to come out with stimulus measures to boost the economy as well as to “sustain the sentiment”, an economist with financial services firm Moody’s has said.
“Even if the new government is cash-strapped, more stimulatory measures or supportive steps will be announced. This is needed not just for boosting the economy but also for sustaining sentiment,” Moody’s economy.com economist Sherman Chan told PTI in reply to an e-mail query.
However, the large public debt burden would constrain the size of any fiscal boost.
To boost the economy, the government came out with two fiscal stimulus packages in December and January, which included excise duty reduction and various incentives across the sectors.
Besides, as part of the interim budget, the government also announced excise duty and service tax cut.
Sherman further said that the RBI might further slash short-term lending (repo) rate by 100 basis points to four per cent by the middle of 2009 as economic conditions remain tough and inflation is falling sharply.
“With inflation now close to zero, there is a strong case for further interest rate cuts, which are needed to encourage consumption,” Sherman said.
Sherman added that the commercial interest rates remain high and the pressure is on RBI to inject liquidity into the financial system to try and bring down borrowing costs.
Since October, the RBI had infused over Rs4,00,000 crore into the financial system by cutting interest rates.
On 4 March, the apex bank slashed repo rate to 5% from 9% in September last year. It cut reverse repo to 3.5% in the same period.
However, in spite of these measures, growth in industrial production fell into negative territory and contracted by 0.5% in January.
Meanwhile, the third quarter growth rate also slipped to 5.3% against the whopping 8.9% growth in the same period a year ago and export also declined by 15.9% in January.
However, inflation dropped to 0.44% for the first week of March, the lowest mark since 1975-76, against 2.43% a week ago, raising expectation of further monetary easing measures by the Reserve Bank.