Logo of Phnom Penh Post newspaper Phnom Penh Post - Inflation pushes India central bank to keep rates on hold

Inflation pushes India central bank to keep rates on hold

Content image - Phnom Penh Post
Reserve Bank of India governor Shaktikanta Das arrives for a press conference at the central bank’s headquarters in Mumbai on Thursday. Punit PARANJPE

Inflation pushes India central bank to keep rates on hold

High inflation prevented India’s central bank from cutting rates for a sixth time Thursday, while it slashed its annual growth forecast as the government struggles to jumpstart the economy.

The news will deal a blow to Prime Minister Narendra Modi, who is coming under pressure seven months into his second term to tackle unemployment, which is sitting at a four-decade high.

The Reserve Bank of India (RBI) said the benchmark repo rate – the level at which it lends to commercial banks – would remain unchanged at 5.15 per cent, a nine-year low.

But it said it expected the economy to expand five per cent in the year through March, from its previous forecast of 6.1 per cent, as consumer demand and manufacturing activity contracts.

India’s economy grew 4.5 per cent in July-September, its slowest pace since 2013 and well off the 7.0 per cent enjoyed a year ago, according to government data.

That is well below the level needed to provide the millions of jobs sought by new entrants to the labour market every year, posing a major headache for Modi.

Economists surveyed by Bloomberg News had largely predicted the central bank would cut interest rates by 40-50 basis points to spark a recovery after a dismal year.

But a sudden spike in retail inflation to 4.62 per cent – beyond the central bank’s target of four per cent – encouraged the RBI to hit pause on further reductions as the government struggles to kickstart what was once the world’s fastest growing major economy.

RBI governor Shaktikanta Das told reporters inflation was likely to remain high through March 2020 as he explained his decision.

“We should allow some time to see the impact of government measures and the RBI’s (previous) rate cuts so we decided to wait and take a temporary pause,” he said.

Finance Minister Nirmala Sitharaman has announced a slew of reforms including easing restrictions on foreign investment in key sectors, slashing corporate taxes, and launching a privatisation drive aimed at reviving moribund state firms.

No benefit to consumers

But the measures have failed to raise confidence. Demand for everything from cereals to cars has plummeted while unemployment is at 8.5 per cent, its highest since the 1970s.

Das – a Modi ally – has cut interest rates five times in a row starting in February 2019, bringing them down by 135 basis points.

But debt-ridden banks have not reduced their lending rates, and so failed to pass on the benefits to consumers.

“Against the backdrop of growth slowdown, the RBI’s rate cutting has not made any major difference,” said Garima Kapoor, economist at Elara Capital. The “RBI has to ensure its massive rate-cutting cycle leads to lower rates for consumers”, she said.

The lack of credit, coming after the collapse of India’s shadow banking sector, has exacerbated the crisis, analysts say.

Public finances are also in a mess, with several state and union territory representatives calling for the government to release funds owed to them from a nationwide tax rolled out in July 2017.

The central government has not paid out some states’ share of taxes since August, local media reported Wednesday.

The Organisation for Economic Cooperation and Development (OECD) forecast a modest recovery for India Thursday, predicting annual growth of 6.2 per cent in 2020, but warned further reforms were needed.

OECD chief economist Laurence Boone urged New Delhi to “continue lowering barriers to trade to generate the investment and jobs India needs to raise living standards across the country”.


  • Would you like fries with that? US burger chain makes Phnom Penh debut

    California-based The Habit Burger Grill restaurant chain is all set to serve up a delicious array of charbroiled burgers and sides at its newest international location in the centre of Phnom Penh. The Habit is “renowned for its award-winning Charburgers grilled over an open flame,

  • Phnom Penh underpass opens to ease traffic

    Prime Minister Hun Sen has announced a temporary opening of the 488m underpass at the Chaom Chao roundabout in Phnom Penh’s Por Sen Chey district, which was recently completed to connect traffic from National Road 4 to Russian Federation Blvd. The move is to reduce

  • ‘No chance Cambodia booted out of ASEAN’

    A group of former and current Cambodian diplomats on Tuesday fired back at retired Singaporean diplomat Bihalari Kausikan after he proposed that ASEAN dismiss Cambodia and Laos from the bloc. In an open letter, the Cambodian diplomats said Kausikan’s remarks were made from a

  • Banteay Meanchey flood victims receive aid

    Prime Minister Hun Sen on Wednesday provided aid to more than 10,000 families affected by flooding in Banteay Meanchey province’s Mongkol Borei district and offered his condolences to the 18 victims who drowned in the province over the past week. He said flooding had occured in

  • Woman seeks answers after arrest of American partner

    Filipina Lalaine de Guzman, 48, is demanding answers for the detention of her American partner by Cambodian immigration officers after he was arrested at their home almost 90 days ago. She said without an arrest warrant or proffering any criminal charges, Stephen Sidney Greatsinger, 56, is being detained

  • PM urges caution as Polish man tests positive for Covid

    The Ministry of Health on Wednesday reported that a 47-year-old Polish man tested positive for Covid-19 after arriving in Cambodia on Monday. There are a total of six Covid-19 patients currently in the country, all of whom are being treated at the Khmer-Soviet Friendship Hospital