India's central bank should cut interest rates to boost economic growth and review food prices before deciding on monetary policy, the commerce minister said. It is the first time a government minister has backed calls to review the country's inflation targeting framework.
“I am convinced that they (the central bank) should reduce interest rates. Growth needs a fresh impetus,” Piyush Goyal told news channel CNBC TV18 at an event in Mumbai Thursday, adding that it was an “absolutely wrong theory” to take into account food inflation when deciding rates.
Mr. Goyal clarified that this was his personal view and not that of the government, but he also referred to a similar suggestion made by the chief economic advisor in his economic study at the start of the year.
India's monetary policy framework should consider targeting inflation that excludes food, whose prices are influenced more by supply than demand, the government's Economic Survey 2023/24 had said in July.
Retail inflation in India rose to a 14-month high in October, mainly due to higher vegetable prices, dashing hopes of an interest rate cut by the Reserve Bank of India (RBI) next month.
The RBI targets inflation based on the Consumer Price Index and is currently responsible for keeping inflation at 4% with a tolerance margin of 2 percentage points on either side, and officials central bank adhered to this directive in their comments.
“The general public understands inflation more in terms of food inflation than in terms of other components of overall inflation,” Governor Shaktikanta Das said in August.
“Therefore, we cannot and should not rest on our laurels just because core inflation has fallen significantly.
At the same event in Mumbai on Thursday, Das said the change in monetary policy stance in October gives the RBI flexibility and scope to act based on the changing outlook, but there is absolutely no reason to rest on one's laurels.
Persistent high food inflation has also strained middle-class budgets and slowed urban spending over the past three to four months, threatening the country's rapid economic growth.
