Government reforms put ball back in RBI’s court
(18 September 2012 – India) India’s central bank is under pressure to cut the country’s official interest rate to help the ailing economy after the government announced a blitz of reforms.
It was widely expected that the Reserve Bank of India (RBI) would hold rates steady to keep a lid on inflation which sits at 7.55 percent, far above the banks comfort level.
However after the reforms had been announced, with diesel prices up 12 percent, doors opened for more foreign investment in all sectors, including retail and the approval of part-privatisation of four state-run companies, rate cuts could now be on the table.
The central bank has repeatedly called for policy action from the government to reduce subsidies and improve the investment climate before further rate cuts could be countenanced.
Business leaders have been clamouring for a rates cut to help revive Asia's largest economy, which saw gross domestic product (GDP) growth of just 5.5 percent between April and June, its slowest expansion in three years.
But the RBI has kept rates on hold since April - when it cut them for the first time in three years - insisting inflation must recede and that the government needs to take steps to curb its ballooning deficit.
However after the reforms had been announced, with diesel prices up 12 percent, doors opened for more foreign investment in all sectors, including retail and the approval of part-privatisation of four state-run companies, rate cuts could now be on the table.
The central bank has repeatedly called for policy action from the government to reduce subsidies and improve the investment climate before further rate cuts could be countenanced.
Business leaders have been clamouring for a rates cut to help revive Asia's largest economy, which saw gross domestic product (GDP) growth of just 5.5 percent between April and June, its slowest expansion in three years.
But the RBI has kept rates on hold since April - when it cut them for the first time in three years - insisting inflation must recede and that the government needs to take steps to curb its ballooning deficit.
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