New Delhi: With stock markets plunging to historic lows, and investor sentiments ebbing, the Chief Economic Adviser Krishnamurthy Subramanian on Friday suggested that the Reserve Bank of India (RBI) can consider reducing policy rates as inflation levels have somewhat moderated.
Speaking with reporters here, he said that the retail inflation data which was released on Thursday was lower and the core inflation would drop further.
India's retail inflation during February dropped to 6.58 per cent from January's 7.59 per cent.
Raising hopes that inflation would drop further, Subramanian said: "(Globally) The central banks have certainly responded. And as I have actually pointed out that the inflation data seems to be clearly, suggesting that you know there is moderation in inflation. So, I think there is scope for the central bank to consider these different aspects the current impact on the stock market, and the overall economic sentiment and economic activity."
Several central banks including the US Federal Reserve have off late announced emergency rate cuts to support investor sentiments which are weighed down by concerns of the coronavirus pandemic severely impairing the global economy.
The Indian central bank has said that it is prepared to take action if required but has not come up with a rate cut. On Thursday, with an aim to curb further weakness for the rupee, the Reserve Bank of India (RBI) on Thursday announced that it will undertake a six-month "sell/buy swap" to provide liquidity to the foreign market.
Talking of the situation in the stock markets, the CEA said that the Indian stock market is not reflecting the fundamentals and is moving on the back of global factors.
"What we are seeing currently is the reflection of some of the global factors related to the coronavirus episode."
He said that fundamentals of the economy in terms of inflation, industrial production, consumption and external sector, points to some strengthening of the economy.
The CEA coronavirus related disruptions may most likely impact services sector particularly travel and hospitality industry.
"... that's something that we actually have to continue monitoring, " he said.