[Commercial banks have
used the difference between what they collect from borrowers and what they pay
to depositors to fatten their profit margins and set aside money to offset
large rosters of nonperforming loans. Mr. Jaitley ordered the country’s mostly
state-controlled banks a month ago to stop making loans and giving out jobs
based on political influence, a deeply ingrained practice that has contributed
to an accumulation of bad debts and may prove hard to eradicate.]
 |
|
Raghuram
G. Rajan, the governor of the Reserve Bank of India, discussed
the economy at a
news conference in Mumbai on Tuesday.
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HONG KONG — Two more central banks
joined on Tuesday the growing international trend toward monetary stimulus as
an antidote for weak global demand, as India reduced the reserves that
commercial banks must hold while Australia cut its benchmark interest rate to a
low.
The Indian action was
aimed at freeing banks to lend more instead of parking money in government
bonds, while the Reserve Bank of Australia sought to directly reduce the cost
of borrowing. Both were intended to encourage companies and individuals to
borrow, spend and invest.
The two central banks
joined the European Central
Bank, the Central Bank of Russia,
the Bank of Canada,
the Monetary Authority of
Singapore and others in recent weeks that have taken measures
to bolster their economies.
Raghuram G. Rajan, the
governor of the Reserve Bank of India, said at a news conference that he had
not yet seen enough economic data to justify a further interest rate cut beyond
the reduction of 0.25 percentage points hemade on Jan. 15.
“Until we get more data,
I think we’re on pause,” he said. Particularly in India, lower oil prices have
reduced the threat of inflation.
Mr. Rajan said he
especially wanted to see coming data on economic output, inflation and the
annual budget proposal from the government, which the finance minister, Arun
Jaitley, is scheduled to announce in Parliament on Feb. 28.
“We have a budget coming
up that is a significant change in the fiscal space,” Mr. Rajan said. “Let the
monetary policy follow its due course.”
But Mr. Rajan said the
next move on interest rates, when it does come, would probably be to lower
them.
He reduced the statutory
liquidity ratio — the share of demand deposits and liabilities like
certificates of deposit that banks must hold as reserves — to 21.5 percent from
22 percent. The reduction will take effect this weekend.
The Reserve Bank of
Australia reduced its benchmark interest rate by a quarter of a percentage point,
to 2.25 percent, as the mining sector there has slowed because of tumbling
mineral prices.
In an interview at the
Indian central bank’s headquarters on Jan. 14, Mr. Rajan cited the broad
benefits that lower oil prices would have for inflation, trade and other
aspects of the Indian economy. But he was cautious about relying on oil prices
to stay low indefinitely.
“Over the year, we are
likely to see some of these disinflationary pressures from oil show up,” he
said at the time.
One dilemma for the Reserve
Bank of India is that commercial banks have been slow to pass on lower interest
rates to borrowers. As Mr. Rajan noted on Tuesday, most commercial banks were
quick to cut the interest rates that they pay to depositors after the central
bank lowered rates on Jan. 15. But with only a couple of exceptions, banks have
left their own lending rates unchanged in the past three weeks.
Commercial banks have
used the difference between what they collect from borrowers and what they pay
to depositors to fatten their profit margins and set aside money to offset
large rosters of nonperforming loans. Mr. Jaitley ordered the country’s mostly
state-controlled banks a month ago to stop making loans and giving out jobs
based on political influence, a deeply ingrained practice that has contributed
to an accumulation of bad debts and may prove hard to eradicate.
In the interview on Jan.
14, Mr. Rajan predicted that competition would eventually prompt banks to lend
more cheaply, a point he reiterated on Tuesday.
The Reserve Bank of India
conducts a comprehensive monetary policy review every two months, and the
decision Tuesday coincided with such a review. The next review is scheduled for
April 7.
Mr. Rajan surprised
investors by cutting rates on Jan. 15 between formal reviews; he said Tuesday
that he hoped to stick to interest rate changes at monetary policy reviews in
the future, but on Jan. 15 felt a need to act immediately.
Mr. Rajan pointed out
that he had announced as part of the previous monetary policy review, on Dec.
2, that he was ready to ease policy as soon as the evidence justified it. All
of the important economic indicators on issues like inflation were available on
Jan. 15.
Most economists had not
expected the Reserve Bank of Australia to cut interest rates until its next
monetary policy meeting in March, but it acted at its regularly scheduled
meeting on Tuesday. Glenn Stevens, the central bank’s governor, expressed
concern in a statement announcing the rate cut that unemployment had been
rising gradually over the past year, even as inflation has slowed.
“In Australia, the
available information suggests that growth is continuing at a below-trend pace,
with domestic demand growth overall quite weak,” he said.
