Onus of providing stimulus now on Reserve Bank: Goldman Sachs

February 16th, 2009 - 6:54 pm ICT by IANS  

New Delhi, Feb 16 (IANS) With no announcement of any major policy changes in its interim budget for the financial year 2009-10, the pressure of providing stimulus to the economy will fall on the Reserve Bank of India (RBI), according to global investment banking and securities firm Goldman Sachs.

“The Finance Minister’s (FM) speech was more a statement of achievements in the past five years, and merely extended spending and revenue plans for FY10,” the firm’s chief economist Tushar Poddar said.

“The speech had both eyes firmly on the upcoming election, and suggested that further policy changes needed a fresh mandate,” he said in a statement.

“Going forward, the mantle of providing stimulus to the economy will fall disproportionately on the Reserve Bank of India (RBI), as the government cannot take any further measures before a new Parliament is elected,” Poddar said.

“We expect the RBI to cut the reverse repo and repo rates by 50 bp (basis points) each before end-March, and the cash reserve ratio of banks by 150 bp by the summer. We believe the inability to cut administered savings rates below 3.5 percent before elections may act as a binding constraint, not allowing the RBI to cut rates further”.

The 10-year bond yield, which was at 6.14 percent before the speech, rose to 6.3 percent after the speech and would steepen further, he noted.

“There is currently not much fear of crowding out as the spread between corporate bonds and government securities remains elevated. However, towards the end of FY10, such a large borrowing program may lead to difficulties in credit availability for the private sector,” Poddar said.

Related Stories

    Posted in Uncategorized |

    Subscribe