Pressure mounts on RBI to cut interest rates

Pressure mounts on RBI to cut interest rates
Highlights

Pressure mounts on RBI to cut interest rates. A top adviser to Prime Minister Narendra Modi called on Thursday favours cut in interest rates in order to boost India\'s sluggish economy, thus putting pressure on the cautious Reserve Bank ahead of a policy review later this month.

Whatever, the Fed does, we are ripe for a 50 basis point rate cut – Aravind Panagariya

Panagariya says economy needs a cut of 50-100 basis points; the apex bank should act regardless of the outcome of Fed meeting next week

New Delhi: A top adviser to Prime Minister Narendra Modi called on Thursday favours cut in interest rates in order to boost India's sluggish economy, thus putting pressure on the cautious Reserve Bank ahead of a policy review later this month.

With the rate decision widely expected to  roil emerging markets, analysts expect the Fed's move to be a critical element in determining the RBI's monetary stance at a policy review  meeting on September 29

While India's projected economic growth of 8 per cent is viewed by the IMF as a bright spot among major economies, Asia's third-largest economy is still suffering from excess capacity.

Arvind Panagariya, who runs the government’s NITI Aayog policy commission, said the economy needs cuts of 50-100 basis points. He said the Reserve Bank of India (RBI) should act regardless of the outcome of a US Federal Reserve meeting next week.

"The case for cutting rates is so strong," Panagariya, a formerly US based economist who joined Prime Minister Narendra Modi's administration in January, in an interview with business channel.

"Whatever, the Fed does, we are ripe for a 50 basis point rate cut," said Panagariya, who has a cabinet rank in the government. The Federal Reserve is meeting on September 16-17 to ponder the timing of the first interest rate rise in the US since the global downturn of 2008.

With the rate decision widely expected to roil emerging markets, analysts expect the Fed's move to be a critical element in determining the RBI's monetary stance at a policy review meeting on September 29.

RBI has lowered rates by a total 75 basis points lower since January with three cuts. However, it left the policy repo rate on hold at 7.25 percent at its last meeting, tying future cuts to the inflation outlook.

Companies say the cost of capital needs to come down to spur a wider recovery. At a meeting with Modi on Tuesday that was also attended by Panagariya, Indian business leaders called for interest rates to be cut as much as 1.25 percentage points by next March.

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