New Delhi: Appreciating the decision of the US Fed to maintain status quo, the Finance Ministry today said it will provide space for monetary policy action and boost software exports. With inflation in decline and the US Fed handing emerging markets a lifeline by not raising interest rates, Minister of State for Finance Jayant Sinha said there is a “favourable” environment for monetary policy action by RBI.
RBI is expected to announce bi-monthly monetary policy review on September 29 amid pressure to cut interest rate to boost growth. “… the decision of the Fed gives more room to emerging markets to adjust their policies. In India we were in any case prepared for all eventualities and government will continue to take various reform measures which have been taken in the last one year…so policy action will continue to further stabilise economy,” Economic Affairs Secretary Shaktikanata Das said.
“US Fed seems to more concerned about getting certain their job revival figures. The unemployment figures are down to pre-2008 level but it would appear that the US Fed would want to be more certain about the job figures which is a good sign for India because once the US economy revives its good for Indian software exporters,” Das said.
The US Federal Reserve yesterday heeded to calls from the World Bank and IMF by deciding not to go for first rate increase in almost a decade, stemming outflows from emerging economies.
Speaking in Mumbai, RBI Governor Raghuram Rajan said the US Fed was impelled to hold the near zero rates again due to the merging threat to the global economy and well as its concern on the health of the American economy. Asked if Fed action provides room for rate cut, Sinha said, “we are in a favourable environment now. Obviously, all of these have to be balanced and RBI has to take its decisions. Let us see how Governor (Raghuram) Rajan and RBI process all of these factors and decide for themselves which course monetary policy should take.”
RBI has cut interest rate by 0.75 per cent this year in three tranches. It refrained from reducing the rate further in the last bi-monthly monetary policy in August.