The Reserve Bank of India (RBI) must cut interest rates, said Commerce Minister Piyush Goyal at CNBC-TV18 Global Leadership Summit on Thursday.
“RBI must cut interest rates. It’s a flawed theory to consider food inflation for making a choice on cutting rates. This is my personal view and not that of the Govt,” said Goyal.
He also said that inflation will come down by December.
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About the recent spate of FII selling, Goyal said, “Investors should take a long-term view and not at the quarterly picture.”
Goyal’s remarks follow India’s retail inflation unexpectedly rising to a 14-month high of 6.2% in October, up from 5.5% in September. This increase has further delayed the possibility of monetary easing by the RBI, as the economy shows signs of slowing.
An increase in vegetable, fruit and edible oil prices was the primary driver of the spike, official data released Tuesday showed.
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The rate breached the outer bounds of the central bank’s inflation target – 4% with a two percentage point tolerance band on either side – for the first time since August 2023.
“With inflation breaching the 6% mark in October and expected to exceed the MPC‘s estimate for Q3FY25 by at least 60-70 bps, a rate cut in the December meet appears ruled out,” said Aditi Nayar, chief economist and head of research and outreach at ICRA.
Rating agency Crisil expects the MPC to only cut rates toward the end of the fiscal year.
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Ind-Ra and CareEdge see the rate-setting committee maintaining the status quo, as do others.
“We are now less hopeful of a February rate cut,” SBI Research said in a note. “We believe the first rate cut is now effectively pushed back beyond February 2025.”
RBI governor Shaktikanta Das had warned last week that inflation levels in October may exceed those in September, adding that a rate cut would only be considered once the measure approached the 4% target level.
Inflation as measured by the consumer price index (CPI) was 4.9% in October 2023, while the average rate was 4.2% in the second quarter of the current fiscal. The CPI was higher in rural areas at 6.7% compared with 5.6% in urban ones. Core inflation—which excludes the volatile food and energy component and is seen as an indicator of demand pressure—hit a 10-month high of 3.7%.
