Schroders Quickview: India’s central bank condones Modi’s budget
The move is surprising because Saturday’s Union Budget delivered less fiscal consolidation (government deficit reduction) than had been laid out in the original roadmap, and RBI Governor Raghuram Rajan had previously appeared to make continued easing conditional on such efforts by the government.
India central bank content
The cut then should presumably be taken as a sign that the RBI is content with the degree of consolidation planned. Clearly, Rajan was encouraged by the level of infrastructure spending and reduction in current spending announced in the budget; in the words of his monetary policy statement: “the government intends to compensate for the delay in fiscal consolidation with a commitment to an improvement in the quality of adjustment”. Rajan said also that disinflation was evolving faster than expected.
No aggressive cutting cycle
However, uncertainties around inflation projections were also flagged, with oil prices stabilising and food inflation ever volatile. Rajan also emphasised a commitment to the inflation target outlined in the budget, of 4% +/-2%. The combination of these factors means an aggressive cutting cycle is unlikely – we see rates being cut no more than an additional 50 basis points this year.
- What are data centres and why are they so important?
- COP26: Pressure growing for step change in climate policy
- Preparing for “net zero” carbon – the long road ahead
- Economic infographic: A view of the global economy in February 2020
- Why global cities could be more valuable than high-performing tech stocks
- How we hold companies to account on their climate change plans