India's interest-rate stance now depends on data, says Shaktikanta Das

Das said he sees signs of a recovery in economic growth and further monetary policy steps will depend on incoming data.

Reserve Bank of India (RBI) Governor Shaktikanta Das said policy makers have effectively delivered more easing than the three interest-rate cuts this year suggest, signaling a more cautious stance on future action.

In one of his first interviews with media since taking office seven months ago, Das said he sees signs of a recovery in economic growth and further monetary policy steps will depend on incoming data. The central bank’s switch to an accommodative stance in June in itself amounts to a 25 basis-point cut, he said, on top of the 75 basis points of cuts since February.

“Effectively, the rate cut has been 100 basis points if you take into account the change in stance,” Das said ahead of the next Monetary Policy Committee meeting that begins August 5. “The accommodative stance will depend on incoming data. How inflation numbers look, how the growth numbers look. Primarily how inflation looks.”

Sovereign bonds fell on Monday after Das’s comments. The yield on the benchmark 10-year bond jumped six basis points to 6.42 per cent, snapping a three-week rally.

“These go on to suggest that the RBI easing cycle is nearing its end,” said Prakash Sakpal, an economist at ING Bank NV in Singapore. “I believe 75 basis-point rate cut is enough of a stimulus for the economy and the RBI should allow this to filter down the real economy before easing anymore.”

The RBI has been the most aggressive central bank in Asia this year to ease policy to support growth amid low inflation. A gloomy global outlook fanned by trade tensions has since prompted policy makers from Australia to South Korea to join the dovish camp.

“Parallel to that we have also ensured surplus liquidity in the system,” Das noted.

The need now is to ensure a revival in domestic demand, Das said, adding that an improving monsoon, lower oil prices and an easing of a domestic credit crunch are positive.

"The signs are looking good," he said. Waning consumption dragged gross domestic product growth to a five-year low of 5.8% in the first three months of 2019, meaning India lost its title as the world’s fastest-growing major economy. That data was followed by the RBI in June lowering its growth forecast for the current fiscal year to 7 per cent from April’s projection of 7.2 per cent.

Business Standard