Limited Scope For RBI to Offer Further Rate Cuts
Arvind Subramanian, the CEA pointed out today that the chance of RBI to cut down interest rate is restricted with inflation hitting hard and growth ringing up.
On February 7, RBI will announce the upcoming monetary policy report review. However, there are less chances of monetary let-up, as opined by Mr. Subramanian. As it is the field of RBI, he thinks rate cuts can be better explained by the bank.
Last time it was August 2, 2017 when the Reserve Bank of India cut down interest rate to 6%. But for now, the game has changed and the pressure of inflation is rising. Hence, reducing interest rates might not be possible.
In December, the retail inflation increased to 5.21% with the mounting costs of food item.
The government has asked RBI to maintain 4% inflation, add or subtract 2%. Any further increase will pressurize central bank to inflate repo rate.
Indian Economy is growing at a faster pace along with the export. It is likely to regain the tag of fastest rising major economy in the world with 7 to 7.5% growth rate in the year 2018–2019. At present it is 6.75%.
Subramanian shows concern over the increasing oil prices globally and quick alteration in stock market as these factors could influence capital flows. When calculating Gross Domestic Product for the year 2018–2019, the crude level is projected at 12% higher than the present fiscal year.
He further stated that rise in Indian equity stock is unlike other economies, because rise in stock prices in India points out huge portfolio reapportion from real estate and gold to stocks. Thus, finely tuned vigilance is necessary as assets’ prices go up.
According to him, the impact of GST will be little or zero and no negative impact of demonetization in the next financial year. To save farmers from shortcomings, a well-planned mechanism is needed.