Room for more rate cuts, says RBI Governor Shaktikanta Das

Inflation will remain below 4 per cent, says RBI Governor Shaktikanta Das
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Mumbai: Global slowdown, trade and geopolitical tensions currently pose major downside risks for the Indian economy, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday.

Even though the crude oil price have been on the rise following the attack on Aramco oil plant in Saudi Arabia, Das expects the crisis to have only limited impact on inflation and fiscal numbers given lower subsidy outgo. He, however, was quick to add that the developments emanating from drone strikes on oil facilities are still playing out.

The Saudi crisis has spooked domestic markets and roiled the rupee leading to fears that a prolonged supply disruption will create problems for the domestic economy as around 80 per cent of oil demand is met through imports.

Speaking at the Bloomberg India Economic Forum in Mumbai, Das also said that there is no global recession as yet and that despite rising external risks, the domestic economy is resilient as foreign debt is only 19.7 per cent of the Gross Domestic Product (GDP).

Das called for more structural reforms to cushion the economy from rising global headwinds.

The RBI governor expects US Fed's latest rate cut to boost fund inflows into the country, but cautioned that the government need to be vigilant about the nature of such funds.

Hinting that only an easy money policy can help salvage the situation, he advised that there should be front-load budgeted spending as there is little fiscal space for countercyclical measures to boost growth.

"Overall the outlook for India' external sector is one of cautious optimism, albeit with some downside risks accentuated at this juncture", Das said at an event here.

After surprising everyone with four successive rate cuts this year, Das said "there is more room" to do so given the growth deceleration and stable inflation that is likely to stay below target for a year or so.

Since Das assumed charge, the RBI has delivered a cumulative 110 bps repo reduction, yanking down the key benchmark rate to a nine-year low of 5.40 percent.

Indicating deepening crisis in the economy, which is partly cyclical and more structural, the government had more bad news pouring in in recent days. While advance tax mop-up missed the target by a wide margin inching up by a paltry 4.7 per cent in for the first half against a target of 17.5 per cent at Rs 5.50 lakh crore up from Rs 5.25 lakh crore a year-ago.

The first quarter GDP slowed to a six-year low of 5 per cent and last month for the first time exports degrew. Every industry, be it auto or FMCG, is gasping for breath as consumer demand has slumped.

That tax revenue was not robust was clear when the government said it had used up as much as 77 per cent of the fiscal deficit or market borrowing by July end.

(With inputs from PTI and IANS)

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