India’s central bank set for third interest rate cut of the year

Updated 31 May 2015
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India’s central bank set for third interest rate cut of the year

MUMBAI: India’s central bank is expected to cut interest rates for a third time in five months when it meets this week, confident that inflation is stable enough to weather the summer monsoon.
The Reserve Bank of India (RBI) has already lowered its benchmark repo rate, the level at which it lends to commercial banks, by 50 basis points to 7.5 percent this year.
And analysts believe the RBI will snip rates again at its next meeting on Tuesday in a bid to encourage greater lending to businesses and increased consumer spending, stimulating the economy.
“I expect the RBI to cut the rate by 25 basis points,” Ashutosh Datar, an economist at IIFL Institutional Equities, told AFP.
Rupa Rege Nitsure, chief economist at L&T Financial Services, agreed, saying she believed the Mumbai-based bank would opt for a “modest” cut.
“Given the uncertainty concerning oil prices and the depreciation in the rupee, which have a high inflationary potential, I don’t think many people are expecting a 50-point cut,” she said.
The RBI, led by governor Raghuram Rajan, sliced 25 basis points off the repo rate in January — the first reduction in 20 months — before a surprise repeat cut in March.
It kept the key rate unchanged last month, citing inflation concerns and a failure of most commercial banks to pass on lower borrowing costs to customers in Asia’s third-largest economy.
But Nitsure said 20 banks were now heeding Rajan’s call to reduce their base rate and another cut would motivate others to “follow suit.”
“There is a need for borrowing costs to come down because demand is so low and inflation is not a threat,” she said.
Prime Minister Narendra Modi’s right-wing government swept to power last year pledging to reform and revive a flagging economy. It received a major boost on Friday when data showed that India’s economy grew 7.5 percent in the first three months of the year, overtaking China.
The government would like the RBI to cut rates further but Rajan has so far made controlling inflation a priority, setting a target of bringing it consistently below six percent by January next year.
In April, consumer inflation fell to a four-month low of 4.87 percent, well within the RBI’s target range. Last week India’s top economic adviser suggested that had “implications for interest rates.”
Arvind Subramanian added that food stocks were plentiful enough to help contain inflation even if the three-month monsoon, expected imminently, is weakened by the El Nino weather phenomenon as forecast.
Monsoon rains are vital for Indian crops and a particularly dry season can reduce farm output, raising food prices which can be crippling for the tens of millions of India’s poor.
“It is possible to contain (inflation) going forward even if the monsoon is not going to be as good,” Subramanian added.
Datar, the economist, said the current retail inflation level “gives the RBI enough headroom to be able to cut rates to try to stimulate demand.”
He added that “if monsoon inflation is not as bad as feared then they’ll probably cut them again later in the year.”
Not all experts agreed that a cut this week would be the right way to go though. Arun Singh, senior economist at Dun & Bradstreet, told AFP the monsoon’s inflationary “risk” meant the RBI should wait until it had passed.


For Iranians, economic crisis looms larger than US tensions

Updated 19 May 2019
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For Iranians, economic crisis looms larger than US tensions

  • Iran’s 80 million people struggle to buy meat, medicine and other staples of daily life
  • Many pointed to the economy, not the possible outbreak of war

TEHRAN: Across Iran’s capital, the talk always seems to come back to how things may get worse.
Battered by US sanctions and its depreciating rial currency, Iran’s 80 million people struggle to buy meat, medicine and other staples of daily life.
Many pointed to the economy, not the possible outbreak of war, as Iran’s major concern. Iran’s rial currency traded at 32,000 to $1 at the time of the 2015 nuclear deal. Now it is at 148,000, and many have seen their life’s savings wiped out.
Nationwide, the unemployment rate is 12 percent. For youth it’s even worse, with a quarter of all young people unemployed, according to Iran’s statistic center.
“The economic situation is very bad, very bad. Unemployment is very high, and those who had jobs have lost theirs,” said Sadeghi, the housewife. “Young people can’t find good jobs, or get married, or become independent.”
Sores Maleki, a 62-year-old retired accountant, said talks with the US to loosen sanctions would help jumpstart Iran’s economy.
“We should go and talk to America with courage and strength. We are able to do that, others have done it,” Maleki said. “We can make concessions and win concessions. We have no other choice.”
But such negotiations will be difficult, said Reza Forghani, a 51-year-old civil servant. He said Iran needed to get the US to “sign a very firm contract that they can’t escape and have to honor.” Otherwise, Iran should drop out of the nuclear deal.
“When someone refuses to keep promises and commitments, you can tolerate it a couple of times, but then certainly you can’t remain committed forever. You will react,” Forghani said. “So I don’t think we should remain committed to the deal until the end.”
Yet for Iran’s youth, many of whom celebrated the signing of the 2015 nuclear deal in the streets, the situation now feels more akin to a funeral. Many openly discuss their options to obtain a visa — any visa — to get abroad.
“Young people have a lot of stress and the future is unknown,” said Hamedzadeh, the 20-year-old civil servant. “The future is so unknown that you can’t plan. The only thing they can do is to somehow leave Iran and build a life abroad.”