‘Little space for more rate cuts as government hands tied’

Mumbai: After surprising everyone with four successive rate cuts this year, Reserve Bank governor Shaktikanta Das said "there is more room" to do so given the growth deceleration and stable inflation that is likely to stay below target for a year or so.

However, the governor was quick to add that there is little fiscal space for the government to unveil any countercyclical measures to boost the sagging growth and the only way to revive the growth engine is to front-load the budgeted capex, hinting that only an easy money policy can help salvage the situation.

Since assuming charge mid-December, the Das-led rate-setting panel has delivered four successive rates cuts, with the fourth one last month being the most surprising and unconventional one as he chose to deliver a 35 bps repo cut.

With that the RBI has delivered a cumulative 110 bps repo reduction since February, yanking down the key benchmark rate to a nine-year low of 5.40%.

"When we see that the price stability is maintained and inflation is much below the 4% mandate and is expected to be so in the next 12 months horizon, there's a room for more rate cuts especially when growth has slowed down," Das said.

On the shrill calls from industry for fiscal measures in the form of tax cuts, Das said, "the government must front-load the budgeted spending as it has t little fiscal space for any countercyclical measures to boost growth."

Stating that there is little space for fiscal expansion, Das said, "so far as the fiscal side is concerned, the government has by and large remained prudent. They have not announced any countercyclical measures that would have lead to fiscal expansion. Most of these things announced are non-fiscal.

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