India’s central bank does not dare to make an economic forecast

Asia’s third largest economy is particularly suffering from the Corona crisis and an economic stimulus program by the government turned out to be a no-brainer. Now the central bank is lowering the key rate.

Indian workers stranded at a train station

IThe central bank surprisingly lowered the key interest rate by a further 40 basis points to 4 percent, the lowest level in 20 years. It also announced a quarterly moratorium on loan repayments.

More difficult, however, was that central bank governor Shaktikanta Das no longer dared to forecast the growth of Asia’s third-largest economy – so far it has been above the values ​​of the analysts of the commercial banks. Instead, he now spoke of a “collapse in demand”: “Consumption suffered the biggest slump due to Corona. The investments are on hold, ”said Das. He no longer dares to forecast because the situation is too complex. But he fears that the Indian economy will shrink in this financial year (March 31) – Prime Minister Narendra Modi had lured his compatriots before the election with the promise of double-digit growth rates and promised a doubling of economic strength. The investment bank Goldman Sachs expects a decrease of 3.6 percent.

Federal Reserve President Das also warned of the labor shortage caused by the exodus of migrant workers who had to leave the cities due to the sudden curfew. On Friday there was a good 6,000 cases, the highest ever recorded infection rate in a single day. India now officially reports a total of 120,000. The economic and financial metropolis of Bombay (Mumbai) suffers with 25,000 cases. “It has a special meaning for the country as New York has for America,” said Mark Matthews, chief economist for Asia at Bank Julius Baer. “Unlike other countries, India has not presented a major stimulus plan,” he said.

Last week the government officially announced the equivalent of 245 billion euros in aid. But the program quickly revealed itself to be a bubble: a large number of the aid had long been known, and analysts assessed the reforms that were being announced under the umbrella as overdue and uncertain in their implementation.

lost trust

The stock market came under further pressure on Friday: Bank stocks in particular lost around 3 percent. The Singapore-based DBS Group warned of a further increase in bad loans and the hope for a “bad bank”: “In view of regulatory uncertainties and the lack of clarity about their financing, the relief is likely to be a long time coming.” Foreign stock exchange traders are losing confidence in the government: their investments fell to their lowest level since 2013, reports Credit Suisse.

The sell-off ran from March to the end of April, with foreign financial investors being net buyers in May. “What is keeping the markets from falling is their attractive valuation of just 2 price-to-book value, based on the 30-year average of 2.9,” said Matthews.