Jaitley thinks it’s now time for rate cut
New Delhi: Days ahead of the monetary policy review, Finance Minister Arun Jaitley today said it’s time for RBI to cut rate in view of moderation in inflation and subdued industrial growth.
When asked if it’s time for RBI to cut interest rate, Jaitley replied in the affirmative.
“My views are well-known. It is (the time),” he said at a press conference on completion of one year of the government.
The Reserve Bank of India (RBI) is scheduled to announce its monetary policy on June 2.
The central bank has lowered its policy rate twice so far in 2015, but maintained status quo at the recent policy meet on April 7 in the wake of unseasonal rains impacting food prices.
The repo, the rate at which the RBI lends to banks, is currently 7.5 per cent and the cash reserve ratio (CRR), the amount of deposits that lenders park with the central bank, 4 per cent.
According to analysts, the mix of slowing inflation and a weaker-than-expected growth is building the case for a softer policy. While a rate cut on or before June 2 is most likely, beyond that, any room for additional rate cuts depends on structural reforms of the government.
However, there is risk of monsoon being lower than average, potentially affecting crop production.
Retail inflation eased to a 4-month low of 4.87 per cent in April while industrial output slowed to a 5-month low of 2.1 per cent in March.
At wholesale level, the deflationary pressure has persisted for the sixth month in a row, with WPI inflation now at a new low of (-)2.65 per cent in April.
These macro economic indicators strengthen the government’s and the industry’s call for a lower rate regime.
“We are penciling in a 25 per cent repo rate cut by RBI on June 2 or even before that,” SBI said had said in a research note.
According to experts, the next round of rate cut may now be driven more by growth considerations as inflationary momentum is likely to remain subdued.
“We are convinced that retail inflation trajectory will be significantly benign on the back of a loss of purchasing power in rural economy,” the SBI had said, adding that “if inflation numbers stay below 5 per cent, there is an outside chance of an additional 0.25 per cent cut”.