The Economic Times
12,199.30-48.95
Stock Analysis, IPO, Mutual Funds, Bonds & More

RBI may wait for Budget announcements before taking rate cut decision

“The forthcoming union budget will also provide better insight into further measures to be undertaken by the government and its impact on growth. Against this backdrop, the MPC judged that there is monetary policy space for further action, but it felt it appropriate to take a pause at this juncture.”

, ET Bureau|
Dec 05, 2019, 05.05 PM IST
0Comments
Agencies
RBI
Das said RBI would wait for clarity with regard to the kind and nature of counter-cyclical fiscal and other measures by the government.
Reserve Bank of India Governor Shaktikanta Das has signaled that the government may be coming up with some counter-cyclical policy measures on the fiscal side to revive to revive growth which may be another reason why the Monetary Policy Committee did not vote for a policy rate cut despite popular expectation.

“It is also likely that the government may initiate some more counter-cyclical fiscal and other measures to arrest the slowdown,” Das said after announcing status quo on the rate front making market participants disappointed to the hilt.

“The forthcoming union budget will also provide better insight into further measures to be undertaken by the government and its impact on growth. Against this backdrop, the MPC judged that there is monetary policy space for further action, but it felt it appropriate to take a pause at this juncture.”

Das said RBI would wait for clarity with regard to the kind and nature of counter-cyclical fiscal and other measures by the government.

Expansionary fiscal policy may widen fiscal deficit but for Das, “it is not a question of worry that the fiscal deficit will be high, in fact I have gone to the extent of saying that in situations like this when growth itself has fallen, the monetary and the fiscal authorities will continue to work together in greater coordination.”

The fiscal deficit is always high in Q2-Q3 because the revenue inflow including direct tax payments particularly picks up in Q4. “Even other tax collections pick up in Q4, but the expenditure is evenly balanced throughout the year. So because of that fiscal deficit will automatically come down,” Das said.

Fiscal deficit has overshoot the budgeted targets at 102 per cent by October itself. In line with the slowdown in the economy GST collections so far have fallen below the budgeted targets and a similar scenario with respect to direct tax and customs duty collections cannot be ruled out.

“If fiscal policy is expansionary in the upcoming budget and provides some support for growth, the RBI could further be convinced to hold back rate cuts,” said Abheek Barua, chief economist at HDFC Bank.

“The absence of any significant counter cyclical measures in the budget, signs of some flattening out of food inflation and undershooting growth numbers could build a case for further rate cuts,” he said.

Several measures already initiated by the government and the monetary easing initiated by the central bank since February 2019 are also expected to further feed in the real economy. “Beyond Q2 there have been several developments that could turn-out to be green shoots depending upon how they evolve,” he said, adding that the timing of rate cut is important to achieve optimum result and RBI is against mechanically bringing down the policy rate.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service