RBI Governor hints at another rate cut this year

RSTV Bureau
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Hinting at a fourth interest rate cut this year, Reserve Bank of India (RBI) Governor Raghuram Rajan has said that he is not done with lowering rates. Rajan said that the RBI was still in an “accommodative mode” and that he would take a decision on the rate cut after new data on inflation and other macroeconomic factors is out.

Rajan was speaking at the Jackson Hole economic policy symposium which is held annually by the Federal Reserve Bank of Kansas City, United States.

“We also have inflation which other people do not have. We have cut the interest rate thrice so far this year and we are still in accommodative mode. We will have a look at data as it comes in and take a view accordingly,” Rajan said while talking about another possible interest rate cut in India.

“We have not said we are finished (on cutting rates) and we will take a view as the data allows us to do,” Rajan told CNBC in an interview on the sidelines of the summit.

Rajan has been under pressure from the government and the industry to further cut interest rates.  In fact RBI has now reached an agreement with the government on forming a new Monetary Policy Committee which be responsible for changing key rates. Rajan said, the panel would be announced soon. While speaking to Bloomberg TV, Rajan said that the panel would be different from what was proposed in a draft earlier last month. The draft said that the government was to appoint majority of the panel members but the veto power was to be vested with the central bank Governor.

The RBI Governor also urged Parliamentarians to resolve their differences and allow the proposed GST law to be implemented which will bring about several important changes in India’s economy.

Rajan also spoke about the slowing economic growth across the world which has been spooking the markets and the global economy. Referring to China’s falling economy, Rajan said that its impact on the Indian economy will not be as severe as several other countries, even though India was one of the biggest trading partners of China. Rajan further said there was a “mood of optimism” in India’s economy.

“If in fact there is a greater Chinese slowdown than is anticipated, it won’t affect us as much as other countries around the world… Of course, everybody would like stronger Chinese growth, but to some extent we are among the least affected,” Rajan claimed.

Rajan also advised the US Federal Reserve against raising the rates when the world economy was in such turmoil.

“My position over time has been don’t do it when the world is in turmoil… It is a long anticipated event, it has to happen sometime — everybody knows it has to happen – but pick your time,” was Rajan’s advice to the Fed.

Interestingly, it is the same summit where Rajan had once famously presented a paper that talked about an imminent global financial crisis, which eventually hit the world markets in 2007-08. Rajan was IMF’s chief economist when he made that famous ‘prediction’.

(With inputs from PTI)