Indian bank governor reiterates there is more scope to cut rates

Reserve Bank of India governor Shaktikanta Das said markets were surprised when the committee started cutting rates in February but subsequently accepted that it was right in doing so. (AFP)
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Updated 16 December 2019

Indian bank governor reiterates there is more scope to cut rates

  • India’s monetary policy committee surprised markets and analysts this month by holding rates steady
  • India’s annual economic growth slowed to 4.5 percent in the July-September quarter, its weakest pace since 2013

MUMBAI: There is scope in India for cutting interest rates further and the central bank will use it when required after studying growth and inflation data, the Reserve Bank of India’s (RBI) governor, Shaktikanta Das, said on Monday.
The monetary policy committee (MPC) surprised markets and analysts this month by holding rates steady after trimming the key interest rate by 135 basis points since the beginning of the current rate reduction cycle in February.
“While taking a pause we very carefully and very definitely said there is space for further monetary policy action but the timing will have to be decided in a manner that its impact is optimum and its impact is maximized,” Das told a conference, the India Economic Conclave, organized by the Times media group.
Das said markets were surprised when the committee started cutting rates in February but subsequently accepted that it was right in doing so.
“And this time, the pause we have taken, I do hope that events will unfold in a manner which will prove that the MPC decision is right,” Das said.
He said both the government and the central bank had taken steps to help the economy recover but the outcome of events in the global economy would play a role.
Das said he hoped a recent trade deal between the United States and China would hold and not be reversed. The “Phase one” agreement reduces some US tariffs in exchange for a big jump in Chinese purchases.
“What is important in the current context is co-ordinated and timely action by all the advanced and emerging economies to revive growth,” he said.
“Growth is an issue of discussion in India and global growth is also an issue of discussion because that does impact. For a moment, I am not implying that slowdown that we have seen in India is entirely due to global factors, but it does impact growth prospects for India.”
India’s annual economic growth slowed to 4.5 percent in the July-September quarter, its weakest pace since 2013, putting pressure on Prime Minister Narendra Modi to speed up reforms as five rate cuts by the central bank have failed to boost investment.
Finance Minister Nirmala Sitharaman, while addressing the same conference, said the government was committed to reforms and was working on reviving growth. But she declined to say when she expected an improvement to come.
“I am not going to spend time saying when it is going to reverse ... As long as anybody wants the government to intervene, we shall intervene,” she said.
“We shall keep doing that until every sector feels that ‘OK, all right, we are on track now, we are moving forward’.”
Das also stressed the importance of communication for the markets and said the RBI had tried to be as clear and transparent as possible.
“Of course, communication should follow action and any communication should not be empty words, it should be followed by further action.”


Lebanon central bank reassures foreign investors about deposits

Updated 57 min 1 sec ago

Lebanon central bank reassures foreign investors about deposits

  • Khalaf Ahmad Al-Habtoor asked if there was any risk to dollar deposits
  • The heavily indebted country’s crisis has shaken confidence in banks

BEIRUT: Lebanon’s central bank said on Saturday there would be no “haircut” on deposits at banks due to the country’s financial crisis, responding to concerns voiced by a UAE businessman about risks to foreign investments there.

Emirati Khalaf Ahmad Al-Habtoor, founder of the Al-Habtoor Group that has two hotels in Beirut, posted a video of himself on his official Twitter account asking Lebanon’s central bank governor if there was any risk to dollar deposits of foreign investors and whether there could be any such haircut.

“The declared policy of the Central Bank of Lebanon is not to bankrupt any bank thus preserving the depositors. Also the law in Lebanon doesn’t allow haircut,” the Banque Du Liban (BDL) said in a Twitter post addressed to Al-Habtoor, from Governor Riad Salameh.

“BDL is providing the liquidity needed by banks in both Lebanese pound and dollars, but under one condition that the dollars lent by BDL won’t be transferred abroad.”

“All funds received by Lebanese banks from abroad after November 17th are free to be transferred out,” it added on its official Twitter account.

The heavily indebted country’s crisis has shaken confidence in banks and raised concerns over its ability to repay one of the world’s highest levels of public debt.

Seeking to prevent capital flight as hard currency inflows slowed and anti-government protests erupted, banks have been imposing informal controls on access to cash and transfers abroad since last October.

A new government was formed this week, and its main task is to tackle the dire financial crisis that has seen the Lebanese pound weaken against the dollar.

Al-Habtoor had asked Salameh for clarity for Arab investors concerned about the crisis and those thinking of transferring funds to Lebanon to try to “help the brotherly Lebanese.”