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Governor Shaktikanta Das expects economy to recover with end of election uncertainty

Date: 18-06-2019
Subject: Governor Shaktikanta Das expects economy to recover with end of election uncertainty
MUMBAI: Reserve Bank of India governor Shaktikanta Das said that while Indian economy experienced a loss in speed of growth in the second half of the financial year 2018-19, passing of election-season political uncertainty and subsequent economic reforms should propel India back to growth trajectory. 

The governor, delivering a speech on ‘the evolving role of central bank’ at an event on Monday, said that slowdown in economic drivers such exports and investments, along with a supply side weakening of agriculture and manufacturing activities caused the blip in growth rate. 

“…we have seen a loss of speed in the second half of 2018-19 as some drivers of growth, notably investment and exports, slowed down. On the supply side, activity in agriculture and manufacturing moderated sharply,” Das said. 

“It is expected that the end of political uncertainty associated with an election season and continuation of economic reforms would lead to a reversal of the current weaknesses in some of the indicators in our economy.” 

Provisional estimates for FY19 released earlier this month showed that the economy grew – a 20-quarter low – 5.8% in the fourth quarter of FY19 against 6.6% in the preceding one and 8.1% in the year earlier. The slowdown has dragged the overall growth in FY19 to 6.8%, a five-year low. 

The period also saw mounting stress in the NBFC sector as many of these non-banks have found it hard to raise capital from debt market, with many of them falling behind on their debt obligations, even as banks’ exposure to these companies caused the regulators to worry about financial stability due to “interconnectedness” of the larger financial sector. 

“The Reserve Bank has recently come out with draft guidelines for a robust liquidity framework for the NBFCs. We are also giving a fresh look at their regulatory and supervisory framework…(RBI) will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors,” Das said. 

“The Reserve Bank will not hesitate to take any required steps to maintain financial stability.” 

The governor said that flexible inflation targeting used by the central bank with rate cuts in monetary policy to maintain price stability solely may not be sufficient to ensure financial stability and central banks need to make requisite regulatory stances and changes to ensure stability in the financial sector. 

“Post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability and therefore financial stability has emerged as another key consideration for monetary policy, though jury is still out as to whether it should be added as an explicit objective of monetary policy.” 

RBI had cut their repo rate by 25bps during the MPC earlier this month to bolster the economic growth; their third such cut since Das assumed charge in January 2019. 

The governor during the speech also expressed concerns over growing geo-political tensions affecting trade relationships and causing weakness in global trade and growth. Tensions surrounding Brexit, has imparted further downside risks to the global outlook, Das said. 

“While signs of weakening world industrial production and trade volume were discernible in early 2019, other business confidence indicators have also dampened in many OECD countries. Likewise, global trade is projected to expand at a moderate pace in next two years in line with the subdued investment outlook for many major economies,” the governor said. 

Source: economictimes.indiatimes.com

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