India’s central bank cuts rates to near decade lows to revive growth

India, Asia’s third-largest economy, expanded by just 5 percent in the June quarter, its slowest pace since 2013. (AP)
Updated 04 October 2019

India’s central bank cuts rates to near decade lows to revive growth

  • Central bank to maintain its ‘accommodative’ policy stance ‘as long as it is necessary’ to revive growth
  • Asia’s third-largest economy expanded by just 5 percent in the June quarter, its slowest pace since 2013

MUMBAI: The Reserve Bank of India on Friday cut the key policy rate to its lowest levels in nearly a decade, stepping up its efforts to kickstart an economy growing at its slowest pace in six years.
The central bank, which also sharply trimmed its 2019-20 growth forecast, said that it will maintain its “accommodative” policy stance “as long as it is necessary” to revive growth, and ensure inflation remains within target.
The six-member Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 5.15 percent, for a fifth straight meeting this year and in line with expectations in a Reuters poll. The reverse repo rate was reduced to 4.9 percent.
And markets expect further easing after Friday’s reduction, with the RBI seen delivering another 15-basis point cut at its December policy, before an extended pause, according to a Reuters poll conducted before the policy review.
With the protracted Sino-US trade war raising the risk of a global recession, central banks around the world — including the US Federal Reserve and the European Central Bank — have ramped up monetary support in recent months.
India’s cumulative rate cuts totaling 135 bps make it the most aggressive central bank in Asia. The RBI’s repo rate is now at its lowest levels since March 2010, when it stood at 5 percent, following the global financial crisis.
“In our opinion, RBI as a central bank has done more than enough to stabilize economic settings. From here onward, monetary easing may not achieve much incrementally,” said Rupa Rege-Nitsure, chief economist of L&T Finance Holdings.
She said it is now the government’s task to remove structural constraints in the economy, with the RBI supporting this effort by fostering financial stability.
All six MPC members voted in favor of a rate cut and for retaining the accommodative stance, the statement said.
Markets wobbled after the RBI decision.
The broader NSE Index, which was up 0.60 percent before the policy decision, turned negative after the rate cut and was last trading down 0.62 percent. The 10-year benchmark bond yield rose to 6.63 percent from 6.59 percent before the announcement, while the rupee weakened slightly to 70.97 per dollar.
“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” the MPC, said in its statement.
To revive the faltering economy, the government in September announced a steep cut in the corporate tax rate — to 22 percent from 30 percent — triggering the biggest intraday gain in Indian stocks in more than a decade.
Asia’s third-largest economy expanded by just 5 percent in the June quarter, its slowest pace since 2013, on the back of low consumer demand and a slowdown in government spending amid global trade frictions.
Surveys this week also showed the nation’s manufacturing and services sectors under increasing strain, underlining the difficulties facing businesses.
The weak GDP numbers prompted several economists to lower their growth projections. The RBI also cut its real GDP growth forecast for 2019-20 to 6.1 percent from a prior projection of 6.9 percent.
The RBI in its Monetary Policy Report (MPR) said it expects real GDP growth to recover in the back half of 2019-20 due to a favorable base effect and past monetary policy actions.
Inflation in August accelerated to a 10-month high but remained well below the central bank’s medium-term target of 4 percent for a 13th straight month. The RBI said it expects inflation to stay under this target through to the early months of fiscal 2020-21.
The central bank said that policy “transmission has remained staggered and incomplete.” It noted that the weighted average lending rate on fresh loans has fallen by just 29 bps, versus the 110 bps cut, ahead of today’s announcement.
Economists expect policy transmission to improve after the RBI mandated banks to link fresh loans to an external benchmark like the repo rate, or the rate on short-term treasury bills since the start of October.
“The RBI is likely to continue with its campaign for more rapid transmission of the benefits to credit users,” said K. Joseph Thomas, research head at Emkay Wealth Management.


Capitalism doing ‘more harm than good’ says global survey

Updated 21 January 2020

Capitalism doing ‘more harm than good’ says global survey

  • The poll contacted over 34,000 people in 28 countries

LONDON: A majority of people around the world believe capitalism in its current form is doing more harm than good, a survey found ahead of this week’s Davos meeting of business and political leaders.

This year was the first time the “Edelman Trust Barometer,” which for two decades has polled tens of thousands of people on their trust in core institutions, sought to understand how capitalism itself was viewed.

The study’s authors said that earlier surveys showing a rising sense of inequality prompted them to ask whether citizens were now starting to have more fundamental doubts about the capitalist-based democracies of the West.

“The answer is yes,” David Bersoff, lead researcher on the study produced by US communications company Edelman. “People are questioning at that level whether what we have today, and the world we live in today, is optimized for their having a good future.”

The poll contacted over 34,000 people in 28 countries, from Western democracies like the US to those based on a different model such as China or Russia, with 56 percent agreeing “capitalism as it exists today does more harm than good in the world.”

The survey was launched in 2000 to explore the theories of political scientist Francis Fukuyama, who after the collapse of communism declared that liberal capitalist democracy had seen off rival ideologies and so represented “the end of history.”

That conclusion has since been challenged by critics who point to everything from the rising influence of China to the spread of autocratic leaders, trade protectionism and worsening inequality in the wake of the 2007/08 global financial crisis.

On a national level, lack of trust in capitalism was highest in Thailand and India on 75 percent and 74 percent respectively, with France close behind on 69 percent. Majorities prevailed in other Asian, European, Gulf, African and Latin American states.

Only in Australia, Canada, the US, South Korea, Hong Kong and Japan did majorities disagree with the assertion capitalism currently did more harm than good.

FASTFACT

75%

The Edelman Trust Barometer survey found lack of trust in capitalism was highest in Thailand and India on 75 percent and 74 percent respectively.

The survey confirmed a by-now familiar set of concerns ranging from worries about the pace of technological progress and job insecurity, to distrust of the media and a sense that national governments were not up to the challenges of the day.

Within the data there were divergences, with Asians more optimistic about their economic prospects than others across the world. There was also a growing split in attitudes according to status, with the affluent and college-educated much more likely to have faith in how things were being run.

Of possible interest to corporate leaders gathering in Davos this week was the finding that trust in business outweighed that in governments and that 92 percent of employees said CEOs should speak out on the social and ethical issues of the day.

“Business has leapt into the void left by populist and partisan government,” said Edelman CEO Richard Edelman. “It can no longer be business as usual, with an exclusive focus on shareholder returns.”