Indian central bank has room to ease right away: RBI Advisor
MUMBAI: The Reserve Bank of India (RBI) has scope to cut interest rates immediately given the government's pledge to narrow the budget deficit, an adviser to the monetary authority said. "There is room for them to move right away, though they might stick to the timetable as there isn't much time left for the April 5 policy meeting," said Ashima Goyal, a member of the central bank's technical advisory panel that makes policy recommendations to Governor Raghuram Rajan. "The budget has delivered enough because they have stuck" with their fiscal consolidation plans, she said, adding that "the other big thing is that the borrowing figures have come out much lower than expected."
In his budget speech on Monday, Finance Minister Arun Jaitley affirmed the administration's target of narrowing the shortfall to 3.5 percent of gross domestic product in the year starting April 1. Controlled spending by the government will aid the central bank's fight against inflation, which accelerated to a 17-month high in January. Sovereign bonds have rallied this week on speculation that Rajan -- who has kept rates on hold for two straight policy meetings -- will add to 2015's four interestrate cuts. Jaitley announced gross market borrowings of 6 trillion rupees ($89.2 billion), lower than the 6.8-trillion rupee median estimate in a Bloomberg survey of 10 fixed-income strategists and economists earlier in the month. The poll had forecast the deficit target to be raised to 3.7 percent from 3.5 percent.
"There is expectation of a normal monsoon after two years of drought, you have wholesale-price inflation which has been negative for more than a year, consumer-price inflation that's less than the central bank's target, oil prices that are expected to be soft for some time and then the global deflationary cycle continues," Goyal said from Mumbai. "Given all these, they have some room to cut rates," she said, predicting a reduction of 25 to 50 basis points in the benchmark repurchase rate this year.