Reserve Bank’s MPC may consider virus impact on Indian economy

SINGAPORE: The monetary policy committee (MPC) of the Reserve Bank of India is likely to consider the developments around COVID-19, which has resulted in supply chain disruptions from China, Singapore’s DBS Bank said in a report on Tuesday.

The report t i t l ed I ndia: Growth and inflation targeting review, Radhika Rao, economist at DBS Bank noted that the impact on India is felt through supply chain disruptions from China as well as regional players, who in turn are net importers from China.

“Temporary price increases are likely to be accompanied by production delays if the pain spills over into 2Q20 (AprilJune),” the report said adding that “the MPC is also likely to consider developments around COVID-19”.

The coronavirus outbreak has brought a large part of the world’s second-largest economy China to a standstill and its impact has been felt across industries.

On January 30, the World Health Organization (WHO) declared the coronavirus outbreak a global health emergency.

On economic growth, the report said, the Indian economy is in the midst of “bottoming out”—to reach a lowest or worst point before beginning to rise or improve.

“For 4Q19, lead data has been mixed, with our momentum indicator signalling a modest slowdown from quarter before. We expect growth to stand at 4.4% y-o-y followed by stabilisation in 1Q20 and a gradual pick-up, thereafter, helped also by base effects,” the report said.

Headline gross domestic product (GDP) growth has slowed from 8% y-o-y in June 2018 to 5% in June 2019 to 4.5% in September 2019.

“Sub-par growth numbers are likely to raise pressure on policymakers to act,” the report said.

On the Reserve Bank of India reviewing the retail inflation targeting framework, the report said “no sweeping changes are likely”.

MUMBAI: While the sharper-thanexpected economic downturn in India may have shocked many, the Reserve Bank of India (RBI) started cutting interest rates well in advance in February last year as it had noticed signals of slowing growth momentum, governor Shaktikanta Das said on Monday.

Delivering t he keynote address at the 13th Mint Annual Banking Conclave in Mumbai, Das said that RBI’S monetary policy committee recognises that there is space for further rate cuts even as it keeps an eye on inflation.

Das said that 2019 was a very unusual year as no one thought that growth could slow to 5% at the beginning of the year. The first advance estimates of India’s gross domestic product for the year to March 31 has pegged economic growth at 5%, the slowest in 11 years.

“It was a complete surprise for everyone. Having said so, I would like to say that perhaps the RBI was among the early ones that noticed that the growth momentum was slowing down,” said Das. The RBI has cut its key policy rate by 135 basis points (bps) between February and October last year.

Das reiterated the monetary policy committee’s (MPC) intent in terms of the accommodative stance. “This time also, the MPC, while recognising that inflation has spiked and we need to wait for more data to see that moderation in inflation is well entrenched... the MPC does recognise very clearly that there is space for rate cuts,” he said.

RBI is faced with the dual challenge of rising inflation and a slowing economy and as three members of the MPC highlighted in the last meeting, structural reforms are now inescapable. Meanwhile, India’s retail infla