Rate cuts not the solution in India - JP Morgan

Jun 05, 2012 |

Reuters

New Delhi

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J.P.Morgan says the depreciation in both nominal and effective terms of the rupee has already resulted in a 'substantial' loosening of monetary conditions in India.

The bank estimates the 10 per cent depreciation of the rupee in nominal (NEER) terms over the past three months is equivalent to 100 basis points of rate cuts, calling it "something that should bring pause to those who still believe substantial rate cuts are warranted."

J.P.Morgan notes that the Indian economy is today more integrated with the global economy, meaning the impact of the rupee's falls on exports has a broader impact.

The bank adds that easing monetary policy would not necessarily lead to faster growth, saying the 'elevated' macro-economic and regulatory uncertainty, as well as supply constraints, are 'far more' responsible for the investment slowdown.

"Policymakers may be well served to focus on these areas rather than undertake substantial monetary easing in light of the events of the last 3 months," J.P.Morgan says.

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