Little fiscal room for govt, but rates can drop: RBI guv
Cites Growth Deceleration, Inflation That’s Below 4% Target
Mumbai: RBI governor Shaktikanta Das said on Thursday that the government has little room for fiscal expansion. But he added there is more room to cut rates given the growth deceleration and stable inflation that is likely to stay below target for a year or so. The governor also warned of downside risks on the external sector arising from deepening of the global slowdown, escalation of trade and geopolitical tensions, and volatile international crude prices.
According to Das, developments arising out of the drone strikes on Saudi oil facilities are still playing out. “Assuming that oil prices, which shot up, continues to be in this range it will not be a big issue as far as price stability is concerned, ” said Das.
Given the challenges, Das said that the government needs to persevere with structu
Any rate cut in the US would mean more inflow of funds…as regulator, we have to be careful in monitoring inflows and managing adverse impact of reverse flow
On Fed Rate Cut
On Saudi Drone Attacks
ral reforms in various sectors of the economy to unlock productivity and competitiveness gains. “The overarching objective should be to keep the current account deficit within sustainable limits and financed by a prudent mix of debt and equity flows,” said Das.
“So far as the fiscal side is concerned, the government has by and large remained prudent and most of the announcements have been non-fiscal. They have not announced any countercyclical measures that will require fiscal expansion. I think the government’s fiscal space is itself very limited. The fiscal deficit is at 3.3%,” said Das, speaking at a Bloomberg event in Mumbai.
He added that there is a lot of discussion in the media about borrowing by public sector units. “Both put together, there is already very limited space as far as fiscal is concerned. But what is the internal position of the government with regard to tax collections? How much expenditure is likely to be materialised? That is something the government has to take a view,” said Das.
On the likelihood of rate cuts, Das said, “When we see that the price stability is maintained, and inflation is much below the 4% mandate and is expected to be so in the next 12 months horizon, there’s room for more rate cuts, especially when growth has slowed down.” The governor’s statement comes against the back drop of four successive rate cuts this fiscal.
| | Unless something dramatic happens, I think the situation can be managed | We are monitoring top 50 fin cos. As and when situation arises, we will use the new powers. First preference will be for market mechanism to resolve issues | Slowdown seems cyclical, but structural reforms are required in land, labour & agri marketing. There is a lot of interaction with the govt on this