There is scope for cutting interest rates further and the central bank will use it when required after studying the growth and inflation data, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Monday.
The monetary policy committee (MPC) surprised markets and analysts this month by holding rates steady after trimming the key interest rate by 135 basis points since the beginning of the current rate reduction cycle in February.
“While taking a pause we, very carefully and very definitely, said there is space for further monetary policy action, but the timing will have to be decided in a manner that its impact is optimum and its impact is maximised,” Das said at a conclave organised by the Times media group. Das said the markets were surprised when the committee started cutting rates in February but subsequently accepted that it was right in doing so. “And this time, the pause we have taken, I do hope that events will unfold in a manner which will prove that the MPC decision is right,” Das said.
He said both the government and the central bank had taken steps to help the economy recover but the outcome of events in the global economy would play a role.
Das said he hoped a recent trade deal between the United States and China would hold and not be reversed. The “Phase one” agreement reduces some US tariffs in exchange for a big jump in Chinese purchases.
“What is important in the current context is coordinated and timely action by all the advanced and emerging economies to revive growth,” he said.
“Growth is an issue of discussion in India and global growth is also an issue of discussion because that does impact. For a moment, I am not implying that the slowdown that we have seen in India is entirely due to global factors, but it does impact growth prospects for India.”
India’s economic growth slowed to 4.5 per cent in the July-September quarter.
Its weakest pace since 2013, this put pressure on Prime Minister Narendra Modi to speed up reforms as five rate cuts by the central bank have failed to boost investment. Das stressed the importance of communication for the markets and said the RBI had tried to be as clear and transparent as possible.
"Of course, communication should follow action and any communication should not be empty words, it should be followed by further action."