Photo: Bloomberg
Photo: Bloomberg

RBI adviser says central bank has room to ease right away

The budget has delivered enough because they have stuck with their fiscal consolidation plans, says RBI adviser Ashima Goyal

Mumbai: The Reserve Bank of India has scope to cut interest rates immediately, given the government’s pledge to narrow the budget deficit, an adviser to the monetary authority said.

“There is room for them to move right away though they might stick to the timetable as there isn’t much time left for the 5 April policy meeting," said Ashima Goyal, a member of the central bank’s technical advisory panel that makes policy recommendations to governor Raghuram Rajan. “The budget has delivered enough because they have stuck" with their fiscal consolidation plans, she said, adding that “the other big thing is that the borrowing figures have come out much lower than expected."

In his budget speech on Monday, finance minister Arun Jaitley affirmed the government’s target of narrowing the shortfall to 3.5% of the gross domestic product in the year starting 1 April. Controlled spending by the government will aid the central bank’s fight against inflation, which accelerated to a 17-month high in January. Sovereign bonds have rallied this week on speculation that Rajan — who has kept rates on hold for two straight policy meetings — will add to 2015’s four interest-rate cuts.

Jaitley announced gross market borrowings of Rs6 trillion ($89.1 billion), lower than the Rs6.8-trillion median estimate in a Bloomberg survey of 10 fixed-income strategists and economists earlier in the month. The poll had forecast the deficit target to be raised to 3.7% from 3.5%.

While India’s forecast growth rate of 7.6% is the highest among emerging markets, other indicators suggest economic weakness. Bank credit growth is at its lowest level in at least 15 years, and total investment as a percentage of gross domestic product hit a 12-year low in 2015, according to the International Monetary Fund. Bloomberg

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