RBI Governor Shaktikanta Das on Thursday said that there is clear evidence that the economic activity is “losing traction” and hence there is a need for “decisive monetary policy action” to promote growth. He said the statement in a meeting which was held to discuss the decision to cut interest rates by 25 basis points during the Monetary Policy Committee’s meeting.
“Overall, there is clear evidence of economic activity losing traction,” the RBI governor said, citing data that showed that the Gross Domestic Product growth in January-March had slowed to 5.8%.
“In sum, growth impulses have clearly weakened, while the headline inflation trajectory is projected to remain below 4.0% throughout 2019-’20 even after considering the expected transmission of the past two policy rate cuts. Keeping in view the evolving growth-inflation dynamics, there is a need for decisive monetary policy action.”
Reserve Bank of India Deputy Governor Viral Acharya said he wanted to highlight an important risk to the central bank’s projected inflation trajectory – fiscal slippages. “Correct economic measurement of the fiscal slippage should factor in the implications of a rising PSBR [Public Sector Borrowing Requirement],” Acharya said, according to the minutes. “Rather than rely solely on the consolidated fiscal deficit figures.”
However, Das responded to this: “Over the last few years, the Central Government has, by and large, followed a policy of fiscal prudence.”