Jait­ley pushes case for more rate cuts be­fore RBI re­view

The Pak Banker - - FRONT PAGE -

In­dia's Finance Min­is­ter Arun Jait­ley made the case for more in­ter­est rate cuts a week be­fore In­dia's cen­tral bank re­views pol­icy, say­ing that a re­duc­tion in bor­row­ing costs would help bol­ster Asia's third-big­gest econ­omy. Banks will soon be in a bet­ter po­si­tion to lower "high" in­ter­est rates af­ter the cen­tral bank took steps to im­prove trans­mis­sion af­ter four rate cuts last year, Jait­ley said in an in­ter­view with Bloomberg TV in Syd­ney on Wed­nes­day. The gov­ern­ment has also re­duced rates on small sav­ings pro­grams that com­pete for de­posits with com­mer­cial banks.

"At this stage if rate cuts do take place it's cer­tainly go­ing to be help­ful be­cause you need a more ef­fi­cient econ­omy and you need a more com­pet­i­tive cost of cap­i­tal," Jait­ley said.

With Prime Min­is­ter Naren­dra Modi em­brac­ing fis­cal dis­ci­pline in last month's fed­eral bud­get, the fo­cus is on whether cen­tral bank gover­nor Raghu­ram Ra­jan will re­cip­ro­cate with a rate cut to bol­ster an econ­omy that is show­ing mixed signs of strength. Most econ­o­mists in a Bloomberg sur­vey see Ra­jan cutting the key rate by 25 ba­sis points on April 5, the first mone­tary pol­icy re­view af­ter the bud­get.

Ra­jan said last month he would as­sess price gains and the bud­get be­fore his next rate de­ci­sion as he looks to hit a 5 per­cent in­fla­tion tar­get by March 2017. Con­sumer prices rose 5.18 per­cent in Fe­bru­ary, a slower pace than es­ti­mated. Jait­ley said the econ­omy could grow even stronger than the forecast of 7 per­cent to 7.75 per­cent in the next fis­cal year if In­dia had a good mon­soon and global growth picked up. In­dia faced back-to­back droughts for the first time in three decades, mak­ing life dif­fi­cult for roughly 70 per­cent of the na­tion's 1.3 bil­lion peo­ple who live in vil­lages.

"Hope­fully if we have a bet­ter mon­soon this year -- In­dia's never had three bad mon­soons in the last 100 years -- we could im­prove," Jait­ley said. In­dia's ex­ports have fallen for a record 15 months, prompt­ing ex­porters to call for a weaker cur­rency. The ru­pee has strength­ened 3.1 per­cent in March, set for the best monthly gain in two years, af­ter slip­ping 3.3 per­cent in the first two months of the year.

Jait­ley said the mar­ket would de­cide the right price for the ru­pee, echo­ing com­ments made ear­lier this month by Modi. "There is a pres­sure from ex­ports to keep it com­pet­i­tive, there is a pres­sure from pol­i­tics to make it stronger," Jait­ley said. "There­fore dis­cre­tion is that the ru­pee finds its own level."

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