RBI governor hints at the possibility of further rate cuts

Hinting at further rate cuts, Reserve Bank of India (RBI) governor Shaktikanta Das said that the central bank had paused in its rate cuts in December as it was waiting for an opportune time to ease policy. According to Das corporates, non-banking finance companies and banks are currently in the process of cleaning up their balance sheets, which will create the base for future growth.

Delivering the inaugural address at the India Economic Conclave organized by Times Network, Das said that the resolution of non-performing assets is gaining momentum. “The Supreme Court’s decision in the case of Essar Steel has really unclogged a major resolution issue which has been pending for some time,” said Das.

The governor pointed out that while growth was slowing down in large parts of the world, what was lacking was coordinated policy action among various economies that was there during the Global Financial Crisis.

“Today when there is a global slowdown ten years after the global crisis, multilateralism is no more. Today bilateralism has replaced multilateralism. I only hope that global growth does not suffer a hysteresis phenomenon,” said Das.

Hysteresis in economics refers to an economic situation that persists despite factors leading to the situation being removed.

“Delayed action should not stifle the recovery process and there is a need for timely action. We find there is space for fiscal policy action in some of the European larger economies in the European Union. From my discussion with central bankers there is a feeling that fiscal action in the European Union is delayed,” said Das.

He added that the new ECB chief Christian Lagarde had said that there is room for fiscal expansion by countries in the European Union.

While reiterating that India’s growth slowdown was not due to global factors, Das said that there was a need for coordinated policy action by the various economies which are confronted with the problem of the slowdown. “There has been a synchronized slowdown there is, therefore, a need for coordinated and timely action,” said Das.

Pointing out that the central bank has been ahead of the curve while cutting policy rates in February 2019, Das said that the decision was based on its reading that momentum for a slowdown is building up.

News Source: Times Of India, Url: https://bit.ly/2rcGF6u

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