CEA V Ananatha Nageswaran sees RBI holding fire if US Fed hikes rate again

By Ruchi Bhatia

India’s central bank won’t face pressure to hike interest rates if the US Federal Reserve tightens monetary policy further, the country’s top economic adviser to the government said. 

“The RBI cycle has not been so tightly linked to the Fed cycle mainly because external finances and financial stability are much better now,” India’s Chief Economic Adviser V Anantha Nageswaran said in an interview with Bloomberg TV’s Haslinda Amin on Thursday. “If the Fed were to hike 25 basis points, or even two times, that will not put pressure on the RBI to follow suit.”

The Federal Reserve left interest rates unchanged on Wednesday while still keeping alive the possibility of more hikes given inflation remains above its 2 per cent target and economic growth is strong. 

India’s central bank has kept its policy rate unchanged at 6.5 per cent four times now, but has signaled monetary policy will remain tight unless inflation settles around the midpoint of its 2 per cent -6 per cent target band.

The RBI has “some degree of freedom than before” given strong macroeconomic fundamentals, Nageswaran said. 

India’s economy is on track to grow more than 6 per cent this year, with risks from oil prices and weather manageable, the chief economic adviser said.

“We are well within the margin of safety on oil prices,” he said, speaking on the sidelines of the Barclays Asia Forum in Singapore. “With a decent monsoon behind us and oil well behaved so far, there’s not much concern on the 6.5 per cent growth expectations for the current fiscal year.”

The RBI’s forecasts are based on a crude oil price of $85 a barrel in the second half of the fiscal year. India’s crude oil basket has averaged $90.08 a barrel in October, according to government data.

Nageswaran also said he doesn’t expect fiscal policy to be loosened ahead of elections due in the summer of 2024. Economists expect Prime Minister Narendra Modi to offer handouts to Indian farmers and support poorer households as he seeks a third term in office.