Clear indication of economy losing traction: RBI Governor
MUMBAI: Reserve Bank of India Governor Shaktikanta Das had, in the last Monetary Policy Committee (MPC) meeting, said that there is clear evidence of economic activity losing traction while giving the rationale for a rate cut.
“Overall, there is clear evidence of economic activity losing traction, with the GDP growth in Q4:2018-19 slowing down to 5.8 per cent,” he said, as per the minutes of the last MPC meeting.
Das further noted that “growth impulses have clearly weakened”, while the headline inflation trajectory is projected to remain below 4 per cent throughout 2019-20 even after considering the expected transmission of the past two policy rate cuts
The Indian economy has been clearly losing traction and needs a decisive monetary policy to promote growth, said Reserve Bank of India Governor Shaktikanta Das while voting for a 25 basis points rate cut along with other five members at the MPC meet earlier this month.
Mr Das, as per the minutes of the June 3-6 Monetary Policy Committee, said that since the last meeting of the rate-setting panel in April 2019, greater clarity has emerged about the evolving macroeconomic situation. The RBI released the minutes of the meeting Thursday. Overall, there is clear evidence of economic activity “losing traction” with the GDP growth in the fourth quarter of the last financial year slowing to 5.8 per cent, he said.
“Keeping in view the evolving growth inflation dynamics, there is a need for decisive monetary policy action. Hence, my vote is to reduce the policy repo rate by 25 basis points,” he said.He also favoured shifting the stance of monetary policy from neutral to accommodative to send a clear signal, indicating that more measures could be taken in the near future to boost growth.
It was for the third time in a row that the RBI cut the key lending rate (repo) by 25 basisi points. MPC member and RBI Deputy Governor Viral Acharya said the mixed picture on economic growth has morphed into one where at least some aspects have weakened considerably over the past two quarters. He also flagged some upside risks, including deficiency in monsoon and volatality in crude oil prices, to inflation.
Mr Das also said quite a sizable part of loan portfolio of banks continues at the base rate, which impedes monetary transmission. Interest rates on small savings are also higher than the prescribed formula, he said.
Asia’s third largest economy grew at a slower-than-expected 5.8% in the last quarter, far below the pace needed to generate jobs for the millions of young Indians entering the labour market each month.(With Agency Inputs ).
