Amid sputtering economy, the Reserve Bank of India should have cut interest rates further and it was wrong on RBI’s part to keep benchmark interest rates unchanged in its latest bi-monthy Monetary Policy meet.
Amid sputtering economy, the Reserve Bank of India should have cut interest rates further and it was wrong on RBI’s part to keep benchmark interest rates unchanged in its latest bi-monthly Monetary Policy meet, Mark Mobius, veteran emerging markets investor, told CNBC. “I think they did the wrong thing… I think they were reacting to the short-term situation with inflation, which is mainly caused by food prices, and, specifically, onion prices,” the news channel quoted him as saying. Reserve Bank of India on Thursday announced that the bank has decided to keep the repo rate, ie, the rate at which RBI lends to other banks, unchanged at 5.15%. However, it was widely anticipated that the apex bank will go for a sixth-rate cut as economy is witnessing a slowdown.
WATCH VIDEO | FE Explained: What is RBI Repo Rate? Know about key monetary policy rate
Addressing the same, Mark Mobius, the founding partner at Mobius Capital Partners, said that the bank must have incorporated a rate cut to spur business confidence in India. The same could have also helped to solve some of the country’s debt problems. India is “going through a big adjustment right now because of the reforms that have taken place, particularly on the taxation side,” he said.
The annual inflation has also witnessed an increase owing to higher food prices and according to RBI, inflation stood at 4.62%. Further, according to consumer confidence survey (CCS) by RBI, households have reduced spending on non-essential items amid pessimism regarding jobs and rising costs.
RBI’s medium-term target was to keep inflation at 4% with a band of +/- 2%. The apex bank has also cut the GDP forecast to 5% while maintaining previous repo rate. However, the central bank has already incorporated 135 basis points rate cut this year itself to tackle the economic slowdown.
Meanwhile, RBI governor Shaktikanta Das said that the bank cannot “mechanically” keep cutting interest rates every time and the bank will wait to see how the past measures pan out before pushing growth, PTI reported.