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Scope for rate cut by RBI remains, less possibility of fiscal stimulus: ADB

FM Jaitley recently said the govt would come out with additional measures to boost economic activities

Press Trust of India  |  New Delhi 

People walk past a barricade inside the Reserve Bank of India (RBI) headquarters in Mumbai. (Photo: Reuters)
People walk past a barricade inside the Reserve Bank of India (RBI) headquarters in Mumbai. (Photo: Reuters)

(ADB) expects the to go for another round of rate cut in the latter part of 2017-18 in view of sluggish economic activities but does not see the possibility of any major fiscal stimulus.

The Monetary Policy Committee of the Reserve Bank reduced the key (repo) by 25 basis points to 6 per cent in August. The committee is scheduled to come out with next bi-monthly monetary policy decision on October 4.


"With within the central bank target range of 26 per cent and economic activity weakening in January-June 2017, the latter part of the fiscal year offers some scope for additional monetary easing," said in a report.

In its 'Asian Development Outlook 2017 Update', the Manila-based multilateral lending agency had reduced India's growth forecast for the current fiscal to 7 per cent from 7.4 per cent owing to weakness in private consumption, manufacturing output and business

As per the latest data released by the Indian government, the country's growth fell to a 3-year low of 5.7 per cent in the April-June quarter of 2017-18.

Minister recently said the government would come out with additional measures to boost economic activities, thus raising expectations of a fiscal stimulus package.

However, said fiscal stimulus "is less likely with the government having exhausted 92.4 per cent of the full fiscal year deficit to cover slippage in non-due to slow progress in achieving targets".

"Meanwhile, the scope for cutting back expenditure is limited," the report.

As per the updated report, India's is expected to average 4 per cent in 2017-18, significantly lower than the the April forecast.

Higher global food and fuel prices and improved aggregate demand are likely to push to 4.6 per cent in 2018-19, though still below the earlier forecast, it said.

The report further said as government efforts to resolve banks' yield results and corporations continue to deleverage, "to industry and services is expected to increase".

The expected uptick in consumption augurs well for capacity utilisation and should attract fresh investment, it said.

First Published: Wed, September 27 2017. 02:45 IST
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