Demand for reduction in Repo Rate raised by the government, will RBI give the gift of cheap loans in December?

The demand for relief from increased EMI of loans has now been raised by the government. Commerce and Industry Minister Piyush Goyal said on Thursday that the Reserve Bank of India (RBI) should cut interest rates and boost growth. Goyal, a chartered accountant (CA) turned politician, said in a TV program that due to food inflation, RBI has not been able to take any action in rate setting for two years. The use of food inflation in setting interest rates is a ‘faulty theory’. Goyal said, “I believe they should cut interest rates. Growth needs to be boosted further. We are the fastest growing economy in the world, we can do even better.” 

 

RBI governor refused to comment 

Later at the same event, RBI Governor Shaktikanta Das refused to comment on the senior minister’s suggestion. He said the six-member rate-setting committee will take an appropriate decision in its next meeting in the first week of December. Goyal’s demands were also supported by finance industry veteran Deepak Parekh. He said the RBI should cut the repo rate and also consider the cash reserve ratio (CRR). Chief Economic Advisor (CEA) G. Anant Nageswaran suggested not including food inflation in the core inflation calculation. Goyal said he has been in favor of not including food inflation in rates for the last 20 years, even when he was in the opposition.

Retail inflation reached 6.2 percent in October.

He said, “I have been saying consistently that it is a flawed theory that food inflation should be considered while deciding on the interest rate structure. Food inflation has nothing to do with the management of inflation. It is a demand-supply situation.” Goyal, who has also previously held the Ministry of Consumer Affairs, said that food grains are not stored or hoarded on a large scale. He said, “Now the time has come that policymakers and regulators should sit seriously, discuss with all stakeholders, economists and come to a conclusion whether food inflation should be a part of decision-making on inflation or interest rates or not.” It is worth noting that the RBI led by Das had previously objected to such arguments. Retail inflation reached 6.2 percent in October, which is higher than the target set by the government for the RBI. 

Inflation will decrease in December and January. 

Goyal said inflation will ease in December and January after the base effect kicks in. He said other factors like the festive season etc. also play a role behind the high CPI numbers. He said there has been coordinated action between the RBI and the government to reduce inflation for the last five years and the last decade has seen the lowest inflation during the tenure of any Prime Minister in the history of India. Meanwhile, the Commerce Minister said private capital expenditure is increasing ‘massively’, and companies will have to consider reducing costs to increase sales in a market of 140 crore consumers.