Indian central bank says top priority is reviving growth

Maintaining financial stability key to economic growth at a time when the country is facing headwinds, says bank governor Shaktikanta Das

Shaktikanta Das, the Reserve Bank of India governor. Reuters

India’s central bank governor Shaktikanta Das said reviving economic growth remains his top priority and urged bankers to pass on past interest rate cuts to borrowers at a faster pace.

The six-member monetary policy committee is giving growth the “highest priority”, Mr Das said at a banking conference on Monday in Mumbai. Policymakers, financial sector representatives and bankers were all concerned about how to revive activity in Asia’s third-largest economy, he said.

The call comes as high-frequency data signal a worsening slowdown in the economy, with car sales in July dropping the most in almost two decades and infrastructure sector output in June growing at the slowest pace in more than four years. The Reserve Bank of India has taken advantage of benign inflation to lower interest rates by a cumulative 110 basis points since February to help bolster growth, putting it ahead of its Asian peers in the current easing cycle.

“Today we are all aware that there are challenges which the business community is dealing with in the real economy,” Mr Das said. “There are global headwinds emanating from issues like trade and geopolitical tension.”

Government bonds pared losses after Mr Das’ comments that stoked expectations of more rate cuts. However, commercial lenders have passed on only a fraction of the past easing to borrowers, much to the frustration of the central bank.

Mr Das termed as “encouraging” the move by some banks such as State Bank of India to link their lending rates to the benchmark repo rate. But the central bank’s expectation is for borrowing costs to move lower faster, he said, adding that the time has come to formalise the linking of lending rates to external benchmarks.

He said maintaining financial stability was key to growth, at a time when the economy was facing headwinds from upheavals in credit and financial markets, the external sector and the payments space.

India’s economic growth slowed to a five-year low of 5.8 per cent in the quarter ended March, as investments dropped and consumers held back on spending amid worries about job losses. Data due August 30 will probably show the economy expanded 6.1 per cent in the the April-June period, according to a Bloomberg survey. That pace is slower than the 7 to 8 per cent growth seen in the past few years.