With retail inflation continuously undershooting the target, the Reserve Bank of India should immediately cut interest rate to support economic growth while taking measures such as lowering cash reserve ratio (CRR) of banks to inject enough liquidity into the system, many economists said at an internal meeting of Niti Aayog on Thursday.
Inflation averaged 4.3 per cent in the first half of FY19, below the RBI’s range of 4.7 per cent-5.1 per cent from its April monetary policy statement. At a 17-month trough of 2.33 per cent in November, inflation is underneath the 3.9 per cent lower end of the range for the second half. The RBI’s target is to keep inflation at 4 per cent over the medium term. Lower inflation rate brightens the prospect of a change in the monetary policy panel’s current stance of ‘calibrated tightening’ in its next meeting in February, given the new RBI governor Shaktikanta Das’ emphasis on growth and his view that inflation remains benign.
Among the 20 economists who attended the Niti Aayog’s ‘Economists Huddle’ were former member of the Prime Minister’s Economic Advisory Council Surjit Bhalla, Crisil chief economist Dharmakirti Joshi, IDFC Bank chief economist Indranil Pan and Yes Bank chief economist Shubhada Rao.
“The latest quarterly GDP figures show a slowing economy, dampened consumption growth and hence no excess demand pressures. RBI should move swiftly to cut interest rates,” said Vedanta chief economist Dhiraj Nayyar, who attended the meeting, chaired by Niti Aayog vice-chairman Rajiv Kumar. It should also reduce CRR for an immediate injection of liquidity in the system, Nayyar added. For much of this year, the Patel-led RBI was seen resisting pressure as well as entreaties from the government, industry and financial firms to ease lending and capital norms for stressed public sector banks, particularly those under the prompt corrective action framework, open a special liquidity window for non-banking financial companies with a precarious asset-liability position and push the flow of credit to small enterprises.
Economists also expressed concern over lower prices realised by farmers for their produce than the minimum support prices, which are at least 50 per cent more than the production cost under new policy. —FE