Thank you for your reading and interest in the news India’s central bank misses a step and now with details
Aden - Yasmin Abdel Azim - The Reserve Bank of India is ending the year as it began: with a shock. Policymakers held their benchmark interest rate at 5.15 per cent. Not a single economist among the 43 surveyed by Bloomberg predicted this outcome. Central banks generally hate giving surprises. It makes people wonder what officials know that they don’t, and tends to sap confidence. So what explains this head-scratcher?
Blame inflation. The RBI cited concerns about rising prices, given that headline inflation breached its 4 per cent medium-term target in October. Food prices have skyrocketed as a result of heavy rainfall, with the cost of onions up 45 per cent in September and a further 20 per cent the following month, according to the central bank’s statement.
With India’s economy crumbling all around him, it strikes me as a bit short-sighted that RBI Governor Shaktikanta Das is getting caught up in vegetables. Gross domestic product increased just 4.5 per cent in the third quarter, government figures showed last week. Little more than a year ago, India was notching an expansion of more than 8 per cent.
If demand is sliding then price increases ought to subside. There’s little inflation in a graveyard.
Das started the year with a politically expedient cut, which many doubted he’d deliver so early in his tenure. His two predecessors left their posts amid questions about central bank independence. That February decision was right, and even lucky. This one is more questionable.
For a major economy, India appears far too worried about inflation targets, especially when other central banks are questioning their effectiveness. The Federal Reserve, for instance, is reviewing how it incorporates its target into monetary policy.
Stick to rates
A better decision would have been to reduce rates by the quarter point most economists predicted, and then use the accompanying statement to signal a standstill was coming. In other words, a “hawkish cut”.
Hitting the pause button so abruptly risks conveying the idea you don’t know what you’re doing, or, at the very least, that your communications machinery has broken down. Das must have known this would be jarring.
The RBI appears to be counting on a brighter world economy to help tide it over. The opening paragraphs of the central bank’s statement notes the dour tone of the global picture that has prevailed this year, but says “some signs of resilience are becoming visible”. It points to the global rally in stock markets.
Das got the global economy right at the beginning of the year, when the RBI became one of the first important central banks to ease. But India’s domestic growth rate has sharply decelerated since, eclipsing the modest reductions in global forecasts by the International Monetary Fund.
India needs everything to go right outside the country if the domestic economy is to have a prayer. With trade wars blazing on every front, that’s looking less and less likely. The RBI picked a heck of a time to slow things down.
These were the details of the news India’s central bank misses a step for this day. We hope that we have succeeded by giving you the full details and information. To follow all our news, you can subscribe to the alerts system or to one of our different systems to provide you with all that is new.
It is also worth noting that the original news has been published and is available at Gulf News and the editorial team at AlKhaleej Today has confirmed it and it has been modified, and it may have been completely transferred or quoted from it and you can read and follow this news from its main source.