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    Lower oil prices lowers inflation & current account deficit, says Principal Economic Adviser Sanjeev Sanyal

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    Lower oil prices lowers inflation & current account deficit, says Principal Economic Adviser Sanjeev Sanyal

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    There is space in India for lower interest rates. But how and when, the timing and so on is up to the Monetary Policy Committee (MPC) to decide, said Principal Economic Adviser Sanjeev Sanyal.

    Principal Economic Adviser Sanjeev Sanyal said that it is not surprising that global factors are impacting India. “The Indian market has been impacted by many of the trends aboard and as we speak we can see that whether it is the FTSE or the DAX; they are down by 7 percent. So, it is not surprising that there has been an impact on India.”
    However, according to him, the Indian economy remains insulated in many ways. “We are a large internally driven economy even though internationally there will be disruptions. We also tend to benefit from declines in energy prices and also in the case of interest rates, as global interest rates come off. We are also an importer of capital and so as an importer of capital and of oil and energy, we are net beneficiaries of large declines in commodity prices,” he said in an exclusive interview with CNBC-TV18.
    “Low energy prices is good for us in the sense that it lowers inflation and it also means that our current account balance to same extent benefits from it. So, current account deficit narrows,” he added.
    Speaking about inflation, Sanyal said that it is likely to be very well contained. “Inflation had spiked up recently because of particular vegetable prices spiking up, onions for example. That has already come off. So, that impact was likely to come off very sharply even before all of this and now there is this impact of oil. So, generally speaking inflation is likely to be very well behaved going forward. If oil prices remain generally tempered, then it does mean that retail prices can begin to drift down,” he said.
    On interest rates, he said, “The US has only just last week cut rates very substantially by 50 basis points given their context. There are discussions of coordinated response particularly given these financial market trends. Last week RBI Governor also gave an interview where he also talked that there have been discussions about coordinated responses. So, it is certainly something that policymakers are very much cognizant of and are thinking about and are talking each other as well worldwide. So, some sort of coordinated measures may come through. It need not only be monetary measures, there are other kinds of measures, coordination, etc. that also can be done.”
    Sanyal said that he believes that there is space in India for lower interest rates. “It is a point I have made for some time now and I would argue that that space remains. But how and when, the timing and so on is up to the Monetary Policy Committee (MPC) to decide,” he said.
    Speaking about the impact of coronavirus, he said, “There have been significant disruptions worldwide. It started in China, but now we can see that it has spread through much of Europe, other parts of Asia like Korea and there have been cases in India as well. It is not that we have been unscathed. This is something we can only respond to, but we have been watching what is happening in Europe and other places as well quite closely."
    "From a purely economic perspective we have been keeping track item-by-item whether it is pharmaceutical APIs or inputs for electronics or cars, etc. We have been keeping track of how many weeks’ worth of supply we have. I would say that there are very few countries that have taken as much effort into making sure that things remain functioning as best as they can under the circumstances,” he added.
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