Measures to loosen both fiscal and monetary policy announced this month could provide a small boost to demand in the near-term. The finance ministry made a clear bid in the interim budget to shore up support ahead of the general election with plans to lift rural incomes and cut income tax. But it also attempted to demonstrate its commitment to fiscal prudence by projecting an unchanged deficit in the coming fiscal year. We suspect that it will have to cut back its spending plans later in 2019 in order to hit that target, which will weigh on growth. Meanwhile, interest rates were cut in the RBI’s policy meeting this month – the first under the stewardship of Shaktikanta Das. But with core inflation still elevated and a growing perception that the central bank has allowed its focus on controlling inflation to slip, higher inflation and higher interest rates are likely over the long term.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services