Most economists and forecasters are expecting India's monetary policy committee to cut benchmark interest rates by 25 basis points in its April policy review. Rajeev Malik, though, feels that there is scope for a steeper cut.
“I think there is a strong case for the MPC to review and go in for a bigger 50 basis point cut even if it doesn't necessarily want to change the stance,” Malik, founder and managing director of Macroshanti, told BloombergQuint in an interview. “I know there will be a lot of resistance for a 50 basis point cut given the stance is neutral. But quite frankly I don't know of any central bank rule book that says it would be inconsistent.”
My argument for a 50 basis points cut is simple: the inflation outlook gives you flexibility, and growth momentum going down certainly requires it. And at the same time, rather than doing two 25 basis point cuts, one now and then two months later, why not just go ahead and do a 50 basis point cut now even as you keep the stance neutral?Rajeev Malik, Founder & MD, Macroshanti
A Bloomberg survey of 26 economists shows 24 of them predicting a 25 basis point cut. The other two expect a status quo on the rates.
Malik said that a lot of people are not paying enough attention to the slowing global economy, which adds to the need for a steeper cut. “People are overlooking what MPC's minutes emphasised on the loss in global momentum and especially concerns about the global backdrop. I don't think the rate cut in February was because inflation was well behaved,” he said. “It was partly accentuated also because of concerns on the growth front, which since that time, have only strengthened in terms of slower global demand dynamics.”
The MPC was slow off the block in adjusting the rates with changing global and domestic dynamics, Malik said, adding that inflation has been low for a while now and the MPC has missed an opportunity. “Given how quickly the global dynamics have flip-flopped, the MPC should've stepped up and changed its stance earlier.”
Inflation, while expected to rise slightly, will remain “well behaved” within the Reserve Bank of India's 4 percent target over the next over year, Malik said. “At a time when inflation, on a one-year outlook, seems pretty benign, there is no reason for an inflation targetting central bank to not go ahead with a bigger cut.”
Watch the full interaction here:
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