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.”


German economy to shrink by 5.2% this year, grow by 5.1% next year

Updated 22 September 2020

German economy to shrink by 5.2% this year, grow by 5.1% next year

  • The number of people out of work is seen rising to 2.7 million this year from 2.3 million in 2019
  • The Ifo institute cautioned that there was an unusually high degree of uncertainty attached to the forecasts

BERLIN: Germany’s Ifo institute on Tuesday said Europe’s largest economy would likely shrink by 5.2 percent this year, raising its previous estimate for a 6.7 percent drop, in the latest sign the damage caused by the COVID-19 pandemic could be smaller than initially feared.
“The decline in the second quarter and the recovery are currently developing more favorably than we had expected,” Ifo chief economist Timo Wollmershaeuser said.
For 2021, Ifo cut its economic forecast for Germany to 5.1 percent growth from its previous estimate of 6.4 percent. It expects the economy to expand by 1.7 percent in 2022.
The number of people out of work is seen rising to 2.7 million this year from 2.3 million in 2019, before edging down to 2.6 million in 2021 and then to 2.5 million in 2022.
That would translate into a jump in the unemployment rate to 5.9 percent this year from 5.0 percent last year. The rate would then drop to 5.7 percent percent in 2021 and 5.5 percent in 2022, Ifo said.
The Ifo institute cautioned that there was an unusually high degree of uncertainty attached to the forecasts. It pointed to the rising number of coronavirus infections, the risk of a disorderly Brexit and unresolved trade disputes.