RBI move in line with fiscal discipline: CEA

Says finance ministry and RBI will work together to ensure the macro economy remains strong

Chief Economic Advisor Arvind Subramanian on Tuesday said a third cut in the policy rate by the Reserve Bank of India (RBI) this year was consistent with macroeconomic trends such as declining inflation and fiscal consolidation. A recovering economy needed policy support, he added.

"These cuts are consistent with trends in the economy, including strongly declining inflation, a contained current account deficit and the ongoing strong fiscal discipline," he told reporters. The government and RBI, he added, agreed these cuts signified that the economy needed policy support, as growth was recovering but the external environment was weak.

The finance ministry and RBI "will work together to ensure the macro economy remains strong, while investment and growth are accelerated towards their potential", he added. On banks passing on the cut in rates to borrowers, he said, "We have to wait and watch on the transmission to a cut in lending rates."

On RBI lowering its projection of economic growth (according to the gross value added) to 7.6% from 7.8% estimated in April, he said: "I have explained the basis of our economic survey forecast and let's see how it pans out. People should have different estimates."

Asked about the possibility of more rate cuts, he said: "We have to wait and watch."