India policy makers’ worries about growth signal more rate cuts

Bloomberg

India’s Monetary Policy Committee (MPC) was unanimous in its view that a deepening economic slowdown is worrying enough to keep interest rates low for longer, the minutes of its latest meeting show.
The concern explains Governor Shaktikanta Das’s statement that the Reserve Bank of India (RBI) would keep its policy stance accommodative for as long as it is necessary to revive growth. The MPC lowered interest rates for a fifth straight time after data showed economic expansion slowed to a six-year low of 5% in the quarter ended in June.
Minutes from the policy meeting released showed Bibhu Prasad Kanungo, the deputy governor overseeing RBI’s monetary policy department, pushed for a rate cut to revive domestic demand, citing the room provided by inflation that’s within target. His colleague, Michael Patra, said while monetary policy was taking the lead in trying to revive the economy, “a full throttle effort by all arms of macroeconomic management is the need of the hour.”
Das underlined the importance of strengthening domestic demand. “The weakening of private consumption, which for long has been the bedrock of aggregate demand, in particular, is a matter of concern,” he said, adding that private investment has also lost traction, with the corporate sector reluctant to make new investments.
Patra said the economic outlook was fraught with downside risks. “In its counter-cyclical role, monetary policy has to be preemptive in addressing the negative gaps — inflation below target, and output below potential — that seem to be developing some persistence,” he said.
Chetan Ghate, an external member of the MPC, said since the last review economic activity has continued to weaken. He added that further policy action would depend on evolving growth-inflation dynamics.
Ravindra Dholakia, an uber dove in the panel, said concerns about likely fiscal slippage are misplaced. He cited his own calculations that showed overall impact of all current announcements on the combined fiscal deficit to be limited to 10 to 20 basis points.