Reserve Bank of India (RBI) Governor Sanjay Malhotra expects the key policy rates to remain low for a “long period” based on the RBI’s projections as the Indian economy is recording robust growth while inflation is well under control, according to a report in Financial Times.
Malhotra also said that the country’s economic growth could turn out to be higher than the RBI’s projection if the trade agreements, currently being negotiated, with the EU and the US are signed.
“The impact of the US trade deal could be as much as about half a percentage point,” the RBI Governor was quoted as saying in the FT report.
The central bank had not looked at the possible impact of the EU trade deal as deeply, but it would also increase growth, he added.
Asked about questions raised by some economists on the quality of India’s economic data, Malhotra said, while some revisions in data do take place, “I think the figures are quite robust.”
Malhotra on December 5 announced a 25 basis points cut in the repo rate to 5.25 per cent from 5.5 per cent earlier to spur growth in the economy.
He said that the surge in economic growth to 8.2 per cent growth in the second quarter of the current financial year and the sharp decline in inflation to 1.7 per cent had provided a rare “Goldilocks period” for the Indian economy.
He further stated that the benign inflation has given headroom to go for a repo rate cut to support growth. The RBI has also raised its projection for the country’s GDP growth to 7.3 per cent from 6.8 per cent earlier.
He also said that the RBI would inject more liquidity in the economy by undertaking open market operations with the purchase of government securities to the tune of Rs 1 lakh crore. Besides, the RBI would also put in place a dollar-rupee swap arrangement of $5 billion.
Malhotra further stated that the RBI has decided to stick to “neutral policy stance.”
A neutral stance requires neither stimulation nor curbs on liquidity as it strikes a fine balance between controlling inflation without hurting growth. The RBI has been sticking to the neutral stance as it was waiting for the earlier monetary policy easing was still playing out and trade related implications are unfolding.
