India’s slowdown spurs rate debate
INDIA’S economic growth probably slowed to about 5 percent in the three months to September, slipping from 5.7 percent in the previous quarter, two senior Finance Ministry sources said, putting pressure on the central bank to cut interest rates.
The sources said Finance Minister Arun Jaitley would argue forcefully for Reserve Bank of India (RBI) governor Raghuram Rajan to lower interest rates when the two met ahead of a decision on rates on Tuesday.
Six months after Prime Minister Narendra Modi swept to power with a promise that “better days are coming”, growth of 5 percent would be a serious slip back from the previous quarter and falls far short of the 8 percent that Asia’s third-largest economy needs to create enough jobs for its growing workforce.
Official gross domestic product (GDP) figures are due for release on Friday.
Indian finance ministers often “jawbone” the RBI on interest rates, but Jaitley’s calls have become unusually insistent of late.
Aides say that he will make the case for cuts forcefully when he meets Rajan.
“A rate cut is the only hope for an industry facing poor domestic and external demand,” one official said.
Rajan has resisted calls to cut the RBI’s 8 percent repo rate, even though retail price inflation has dipped below the 6 percent target he wants to hit by January 2016.
The hawkish former International Monetary Fund chief economist has made it his mission to introduce inflation targeting to India, a country long plagued by double-digit price rises that hurt the more than 700 million people who live on $2 (R22) a day or less.
So while factors such as weak international oil prices and flagging export demand have prompted Asia’s top two economies, China and Japan, to take aggressive action to ease monetary policy, Rajan has held out.
Policymakers in New Delhi say the RBI should follow suit, ratcheting up the pressure on a central bank that enjoys policy autonomy but lacks the kind of independence enjoyed by central banks in the West.
“Rajan would have to really work hard to convince the finance minister why he will not cut interest rates this time,” said another Finance Ministry official.
Jaitley has so far vowed to uphold a fiscal deficit target of 4.1 percent of GDP, but his aides caution that any further cuts in spending that the government has to make to hit it could further sap growth. – Reuters