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Rate cuts by RBI and ECB reverberate at ADB meet

While RBI said there was limited headroom for further rate cuts, ECB did not rule out the possibility of further lowering of rates

BS Reporter  |  Greater Noida 

Rate cuts by the Reserve Bank of India (RBI) and the European Central Bank (ECB) reverberated at the Asian Development Bank (ADB)’s annual general meeting today, with participants saying inflation was a major problem in many emerging economies, while European countries faced extremely low growth rate.

This led to difference between the guidance given by the yesterday and today in terms of their future actions, even as both cut the rates, those participating in the meeting said.

While categorically stated there was limited headroom for further rate cuts, did not rule out the possibility of further lowering of rates, even as the benchmark rate was cut to as low as 0.50 per cent.

As if to corroborate what has been saying, President Takehiko Nakao said that for many emerging market economies and developing economies, inflation was still a source of instability, and cited the example of food price spikes.

Again, the president seemed to be defending Governor D Subbarao’s statement. Without specifying the country, he said unless governments pursued prudent macroeconomic policies, the monetary policy could be damaged by the pressure from the government regarding monetary financing of fiscal deficit.

In India, automatic financing of fiscal deficit has been discontinued since 1990s. However, still many analysts believe indirectly does finance the deficit through its expansionary tools.

Whether there could be similar or coordinated monetary actions worldwide? In former deputy governor Subir Gokarn’s view, the objectives of monetary actions are different in different parts of the world.

Nakao reiterated his point made yesterday that monetary expansionary policies of the developed world could have positive impact on emerging market economies. So far as the negative impact of asset bubbles are concerned, these could be managed by countries applying specific measures, he said.

However, managing director Rajat Nag cautioned emerging markets, including India, to be alert on asset bubble as a fallout of quantitative easing by developed nations.

“The positive thing of quantitative easing out of Japan and other economies is that they will start to grow, but we have to be wary of building asset bubbles and economic overheating," he told a press conference here.

Even as pegged India's economic growth at 5.7 per cent for the current financial year from an estimated decade low five per cent growth in 2012-13, policy makers and advisers--Finance Minister P Chidambaram, Economic Affairs Secretary Arvind Mayaram and Chief Economic Advisor Raghuram Rajan —were sure India's economy will grow more than six per cent.

Planning Commission deputy chairman Montek Singh Ahluwalia said the government was taking measures to make the economy grow by seven per cent. However, the potential is eight-nine per cent, he added.

Moody’s retains highest ratings to ADB
Indians might have been dismayed at ADB’s compulsion for not increasing lending to India, but the prudent financial policies have resulted the multi-lateral agency to retain its highest rating from Moody’s Investors Services. In its credit analysis released today, Moody’s retained the highest Aaa rating on the bank. Also, it maintained short-term rating at the highest level — P1.

It retained outlook on these ratings at stable.

  • As a finance ministry official termed the Cabinet Committee on Investments a game-changer, there was a murmur at a corner “How many game-changers will this government have? A very senior Congress leader had termed Lok Pal a game-changer, then direct cash transfer was branded a game-changer after that the food security Bill is being seen as a game-changer. And now, comes this,” a person said in a whispering tone with a smirk
  • To much of his dismay, a delegate found that there was no chair for him at a panel discussion. He recalled that Asian Development Bank had asked him to confirm his participation and when he confirmed, a message welcoming him to the function came to him from “What a weird kind of welcome this is,” he wondered
  • After singing some Bollywood numbers at his department’s annual retreat last month, Economic Affairs Arvind Mayaram today exhibited his photography skills. His boss P Chidambaram also revealed his different side when he happily agreed to pose for photographs with some people, who appeared to be amused to see the FM at the Expo Mart in Greater Noida. Mayaram clicked pictures from different angles as Chidambaram’s enthusiastic fans, who probably did not know the man was a high-ranking bureaucrat, handed over their cell phones to him for taking pictures

First Published: Sat, May 04 2013. 00:50 IST