Reserve Bank governor Shaktikanta Das on Friday said the fifth straight rate reduction to a decadal low of 5.15 percent was necessitated by the growing concerns over the stalled growth and the urgency to restart the growth engine.
The central bank takes the government commitment on maintaining fiscal deficit at the budgeted level on the face value, Das said when asked about the stress on government finances due to the massive tax giveaways earlier last month, involving a revenue loss of Rs 1.45 lakh crore and falling GST mop-up which has continuously been missing the Rs 1 lakh-mark.
Friday's 0.25 percentage points repo rate cut is the fifth consecutive growth supporting measure that the central bank has been taking to prop growth up that has slid to a six-year low of 5 percent for the June quarter.
Recognising the deepening slump, the RBI slashed its growth estimate by a sharp 80 bps to 6.1 percent for the year. spooking the market sentiment, and also marginally revised upwards its Q2 retail inflation forecast to 3.4 percent but retained the estimate for the second half at 3.5-3.7 percent.
"The monetary policy committee was of the view that continuing slowdown warrants intensified efforts to restore growth momentum," Das told reporters.
"As long as the growth momentum remains as it is, and till growth is revived, RBI will continue to remain in an accommodative mode," he added.
However, he parried a question on whether there is a floor which the central bank has set for itself, if it goes about doing what it is promising.
The monetary panel chose a 0.25 percent rate cut, softer than last time's 0.35 percent, as it wants to wait and see the impact of its past actions and how fiscal stimulus oils growth.
On the fiscal management front, there was a departure from the past, where the central bank has flagged concerns on the fiscal gap widening if it sees a threat of that nature due to its impact on its core job of inflation.
"As of now, the government has stated that will adhere to the fiscal deficit target. We have, therefore, no reason to doubt the commitment of the government to maintain the fiscal deficit numbers as given in the budget," Das said.
He stressed that given the government's track record, the RBI has no reason to doubt the statement and added that North Block has multiple options to shore up the revenue if the need arises.
Das reiterated that fiscal stimulus, including the massive corporate tax cut, is a net positive for the economy.
As long as the fiscal deficit is maintained, there is no reason for concerns over crowding out of private investment, he said, affirming RBI's support for a smooth borrowing by the government.
About the concerns surrounding higher small savings rates restricting the monetary transmission, especially for existing borrowers, Das said the RBI is in dialogue with the government on the rates.
Whether RBI is working on assessing the overall impact of the realty sector across various sectors of the economy, he said the central bank does the same in its half-yearly financial stability report.
Even as the RBI has marked out threats on the external front as a downside risk to its growth estimate, Das exuded confidence that the Indo-US trade issues will get sorted soon.
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