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Banks

India rate cut indicates shift in monetary policy stance: finmin adviser

The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai July 30, 2013. REUTERS/Vivek Prakash

NEW DELHI (Reuters) - The inter-meeting rate cut by India’s central bank indicates a shift in its monetary policy stance, the finance ministry’s chief economic adviser Arvind Subramanian said on Thursday.

The Reserve Bank of India cut interest rates on Thursday by 25 basis points to 7.75 percent in a surprise inter-meeting cut, yielding to signs of slowing inflation, while acknowledging government efforts to contain the fiscal deficit.

“It will provide some fillip to the economy both directly and indirectly,” Subramanian told television channels CNBC-TV18.

“It does signal a shift in the underlying (monetary) stance going forward.”

Helped by plunging global oil prices, India’s wholesale price index for December rose just 0.11 percent year-on-year, after staying flat in November, according to data released on Wednesday. A Reuters poll of economists had forecast a 0.6 percent rise.

Retail inflation, meanwhile, rose to 5 percent in December -- below the 5.4 percent annual rise predicted by analysts in a Reuters poll. The RBI is targeting retail inflation of 6.0 percent by January next year.

Subramanian, a former U.S.-based economist who joined the finance ministry in October, said lower oil prices, weak demand and slowing rural wages are expected to keep inflation in check, opening up a window for more rate cuts.

“We can expect strong disinflation going forward,” he said. “Therefore, that will create the room for possibly more monetary policy easing.”

Reporting by Rajesh Kumar Singh; Editing by Douglas Busvine

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