Case for pause in rate hike as growth focus intensifies: Govt official – The Economic Times*****

lipped from: https://economictimes.indiatimes.com/news/economy/policy/case-for-pause-in-rate-hike-as-growth-focus-intensifies-govt-official/articleshow/96238260.cms

Synopsis

Officials say there is growing concern in the government over a spillover from the global slowdown hurting the fragile economic recovery, and a greater need to provide support.

Government policymakers expect the central bank to pause monetary tightening, with retail inflation sliding below 6%, the upper bound of the Reserve Bank of India‘s (RBI) target rate.

Officials say there is growing concern in the government over a spillover from the global slowdown hurting the fragile economic recovery, and a greater need to provide support.

Retail inflation fell more than expected to an 11-month low of 5.88% in November, dropping below 6% for the first time since December last year. Official data released on Wednesday showed inflation based on the Wholesale Price Index (WPI) eased to a 21-month low of 5.85% in November, from 8.39% in October. Last week, RBI raised the benchmark repo rate by 35 basis points (bps) to 6.25%. A basis point is 0.01 percentage point. Two members of the six-member Monetary Policy Committee (MPC) voted against the policy stance of “withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.” One voted against the rate increase.

An official said the government backed RBI in its fight against inflation and took several measures to cool the prices of commodities, including crude, while ensuring the fiscal situation did not go out of hand.

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Keeping a Watch on Prices
“There is a case for closely watching how the latest policy rate increase plays out and data sets,” the official said, adding that there is a growing view favouring a pause.

According to the official, with inflation moderating, there is a case for a pause in monetary tightening to assess the situation and prevent any unwarranted rise in rates from denting growth.

The next meeting of the MPC is scheduled for February 6-8.

Finance minister Nirmala Sitharaman in Lok Sabha on Wednesday committed to further bringing down inflation. “We will bring (it) down further for the sake of the common people,” she said, while replying to a discussion on the first batch of the supplementary demands for grants in the Lok Sabha.

The government is constantly watching the price situation of essential commodities, she said.

Consumer inflation in the US rose at the slowest pace in 12 months in November, raising the odds of the Federal Reserve also easing monetary tightening. This will also reduce pressure on RBI to raise rates. “We now maintain a minimal probability of a February terminal 25-bps rate hike,” State Bank of India group chief economic adviser Soumya Kanti Ghosh said in a note. “However, that will also be accompanied with a change in stance to neutral, if it is to happen so.”

Growth Concerns
Worries about growth have begun to mount, with the latest data indicating that the impact of the slowdown in the developed world had begun to show, the official said, adding that the economy needs to be supported. Another official said growth will be one of the key priorities in the upcoming budget, to be unveiled in February.

India’s goods exports fell to $29.78 billion, from $35.45 billion in September. Industrial output contracted 4% in October from a year earlier, with export-focused sectors such as textile, apparel, leather products and pharma posting a sharp contraction in October.

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