India distracted by ideological considerations, says Nouriel Roubini

While speaking on the monetary policy-related aspects, Roubini also flagged up the issue of RBI autonomy.

Indian policymakers have been “distracted” by ideological considerations, when the economic slowdown deserves the most attention, American economist Nouriel Roubini said on Thursday.

Foreign investors get “worried” by scenes of protests on the streets, the professor at New York University’s Stern School of Business said, warning that economic slump can make a regime unpopular.

The comments from Roubini come at a time when official data showed that GDP growth may to slip to 11-year-low of 5 per cent this fiscal, and amid growing protests across the country against the Citizenship Amendment Act, which critics allege as being discriminatory against the Muslims. “The macroeconomic policies are not where they should be, structural policies are not where they should be,” Roubini said, while speaking at an event organised by CFA Society India.

In a conversation with global brokerage firm Morgan Stanley’s Riddham Desai, Roubini rued that Indian policymakers are focusing on other aspects despite global headwinds like the impacts that can be caused due to a rise in oil prices amidst the US-Iran conflict. x“The attention of the policymakers should have been concentrated on the economy and is instead distracted by political things, ethnic things and other things to do with ideology,” Roubini said.

Uncertainties are not good for the economy, he said and referred to President Bill Clinton’s famous phrase ‘It is the economy, stupid!’ to warn that the policies adopted may not pay political dividends as well. “You may be popular initially because of politics and ideology but if the economy slows down, you will be losing your popularity,” Roubini said.

He said the Indian economy was in a “slowdown” and the declining growth will “probably stabilise” in 2020.He bracketed India among the emerging markets where a growth pick-up is up to two quarters away.

While speaking on the monetary policy-related aspects, Roubini also flagged up the issue of RBI autonomy. "There has been some concern on how much the RBI is independent, than what it used to be," he said... Read More

RBI set to cut interest rate in August for the fourth time in a row: Report

They are going to cut rates in August and again later, mainly due to low growth and weak inflation, said an economist.

The Reserve Bank of India is set to cut interest rates in August for the fourth meeting in a row, according to a Reuters poll of economists, a majority of whom said risks to their already-modest growth forecasts were skewed more to the downside.

If the RBI does cut rates next month, it will be the most aggressive amongst dovish central banks in Asia. The last time the RBI delivered so many back-to-back cuts was after the global financial crisis over a decade ago, when most major central banks went on a cutting spree to revive economic growth.

Almost 80 per cent of 66 economists in the July 17-24 poll expected the RBI to cut its benchmark repo rate by 25 basis points to 5.50 per cent at the Aug. 7 meeting. Three respondents predicted a 50 basis points cut and the remaining 10 forecast policy on hold.

"It is baked in the cake. They are going to cut rates in August and again later, mainly due to low growth and weak inflation," said Gareth Leather, senior Asia economist at Capital Economics.

India's inflation has remained below the central bank's medium-term target of 4 per cent for almost a year and is not expected to rise significantly above that until at least 2021. The poll's findings support RBI Governor Shaktikanta Das' recent comments about the central bank's accommodative stance and suggests further easing.

Indeed, following next month's expected move, the next rate cut is seen in early 2020, after which the RBI is forecast to keep rates on hold at 5.25 per cent through to end-2020.

Yet despite three interest rate cuts this year and expectations for more, India's growth outlook was downgraded in the latest poll compared to the previous quarterly economic survey in April.

Business Standard

New RBI chief delivers election cut for PM Modi in a surprise move

The surprise 25-bps rate cut came almost a week after the Centre unveiled an expansionary budget, which included $13 billion of help for consumers ahead of the poll that's due by May.

India’s new central bank chief delivered an unexpected interest rate cut, providing Prime Minister Narendra Modi with the kind of stimulus he needs to stoke economic growth in an election year.

In a sharp reversal from October, when the Reserve Bank of India took rate cuts off the table, Governor Shaktikanta Das -- who took office in December -- opened the door to more policy easing and brought growth firmly back onto the Monetary Policy Committee’s agenda. That was a departure from his predecessor Urjit Patel, whose singular aim was to meet the RBI’s 4 percent inflation mandate.

The surprise move came almost a week after Modi’s administration unveiled an expansionary budget, which included $13 billion of help for consumers ahead of the poll that’s due by May, and days after a top adviser to the prime minister said the RBI should cut rates.

Das, a career bureaucrat, was appointed shortly after Patel resigned as governor amid a heated public battle with the state, which led to questions about the central bank’s independence from politics. Modi’s government has been pushing the RBI to transfer more of its excess capital to the state as well as ease lending restrictions on banks to spur growth.

Government officials were quick to praise the RBI’s move, while economists were more cautious, concerned that the monetary and fiscal stimulus would be inflationary.

“A very balanced and pragmatic policy statement,” Economic Affairs Secretary Subhash Garg said after the rate move. It “underlines low inflation and high growth path for India for 2019-20.”

Das pointed to a sharp slowdown in inflation as justification for the 25 basis-point reduction, taking the repurchase rate to 6.25 percent. The MPC also reversed its policy stance to neutral from ‘calibrated tightening’ adopted in October.

“Reading between the lines, it appears that Mr. Das has changed the RBI’s paradigm overnight, to one where growth is the focus of policy and inflation merely an input into decisions,” said Freya Beamish, chief Asia economist at Pantheon Macroeconomics Ltd.

That opens the way for more rate cuts, she said, adding “we are worried by the U-turn and what this week says about the RBI’s frail autonomy and discipline.”

Market reaction to the surprise rate cut was subdued. The yield on the most-traded 2028 sovereign bonds fell just seven basis points, the rupee eked out a gain and the main stocks gauge closed flat on Thursday.

The U.S. Federal Reserve’s shift to a more dovish stance is giving emerging markets like India a reprieve after last year’s rate hikes. Central banks in the Philippines and Thailand also held rates steady this week.

Business Standard