RBI Policy
Need to cut rate to revive demand, limit rupee appreciation, says MPC Kumar
This story was originally published at 19:47 IST on 23 October 2024
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--MPC Kumar: Opportune moment to start process of normalising monetary policy
--MPC's Kumar: Rate cut could help revive demand, boost private investment
--MPC Kumar: Rupee may appreciate if Indian monetary policy doesn't normalise
--MPC Kumar: Demand deficit may be why pvt invest hasn't picked up momentum
--MPC Kumar: Indian industry clearly suffering from low local, foreign demand
--MPC's Kumar: Trends point to weakness in local demand, industry
--MPC's Kumar: Recent core sector contraction "matter of concern"
--MPC's Kumar: Emerging trends in Indian economy suggest a growth slowdown
--MPC's Nagesh Kumar: India is not alone in pushing manufacturing sector
NEW DELHI - The Reserve Bank of India's Monetary Policy Committee's new external member Nagesh Kumar, the only one to vote for a 25-basis-point rate cut in the October policy meeting, said that a rate cut could help revive flagging demand in the country and limit rupee's appreciation.
"The rupee has been already appreciating in real terms and a further appreciation would hurt the competitiveness of Indian products," Kumar said in the minutes of the Oct. 7-9 MPC meeting. So far in the current financial year, the Indian currency has depreciated 0.8% against the dollar. The rupee's real effective exchange rate against a basket of 40 currencies, in terms of trade-based weights, was at 105.17 in September.
Kumar is of the view that given that inflationary expectations have been successfully anchored, and industrial demand in both domestic as well as export markets is ebbing, a rate cut could help to revive demand and help boost private investment.
The emerging trends in the Indian economy suggest a slowdown of the economic growth from 8.2% in 2023-24 (Apr-Mar) to 6.7% in Apr-Jun, Kumar said. Several high frequency indicators have been indicating losing growth momentum in the country. RBI staff on Monday cut their forecast for India's GDP growth in Jul-Sept to 6.8%, keeping it 20 basis points below the central bank's official projection.
"Therefore, the Indian industry is clearly suffering from demand deficits in both domestic and external markets. Demand deficits may be the reason private investment has not picked up momentum despite the companies' healthy balance sheets and all the reforms and incentives extended by the government," he said.
Kumar flagged that India's core sectors such as cement, iron and steel, and chemicals showing negative growth over the past two quarters despite a rather heavy infrastructure push by the government through unprecedented capital expenditure since FY24 is a matter of concern.
On the inflation front, the director and chief executive of Institute for Studies in Industrial Development, believes that the inflationary trends suggest that the monetary policy interventions of the RBI have had greater success in managing inflation. "Food inflation especially cereals and vegetables has been challenging but it is driven by cyclical supply side issues rather than demand which is addressed by monetary policy," Kumar said. Headline retail inflation surged to a nine-month high of 5.49% in September. Food inflation surged to 9.24% in September from 5.66% in August.
In its last meeting, the rate-setting panel left the repo rate unchanged at 6.50% for the 10th consecutive meeting. The committee, however, unanimously chose to change the policy stance to neutral from 'withdrawal of accommodation', which was in place since June 2022. End
Reported by Pratiksha
Edited by Vandana Hingorani
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