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Informist, Thursday, Nov. 14, 2024

 

NEW DELHI – Commerce Minister Piyush Goyal on Thursday called on the Reserve Bank of India to lower interest rates, saying that focussing on food inflation while making interest rate decisions is a "flawed theory".

 

"I certainly believe they (RBI) should cut interest rates. Growth needs a further impetus. We are the fastest growing economy in the world. We can do even better," Goyal said, while speaking in Mumbai at CNBC-TV18's Global Leadership Summit.

 

"And frankly, the largest component of inflation is food inflation. The chief economic adviser had also assessed the whole situation... I think it is an absolutely flawed theory that food inflation should be considered while deciding on the interest rate structure. Food inflation has nothing whatsoever to do with managing inflation," he went on to add.

 

"I think it's time that the policymakers and regulators seriously sat down, discussed with all stakeholders, discussed with economists even beyond their own, and we came to a considered view whether food inflation should at all be a part of the decision-making for inflation or interest rates. This is my opinion, I don't speak for the government... I am quoting from the CEA's report. This has been my considered view for the last 20 years at least."

 

Goyal's comments come days after the statistics ministry said headline retail inflation jumped to a 14-month high of 6.21% in October, higher than economists' expectations of 5.9%, driven by food inflation surging to a 15-month high of 10.87%. With CPI inflation having risen more than 250 basis points since August, hopes of an interest rate cut by the RBI at its December meeting have all but died down, with focus now shifting to February and even April. On Oct. 9, the Monetary Policy Committee left the repo rate unchanged at 6.50% for the 10th meeting in a row.

 

Goyal's suggestion to exclude food inflation from inflation targeting has been suggested by the government on several occasions in recent months after the 2023-24 (Apr-Mar) Economic Survey, released on Jul. 22, called for the same. However, the suggestion has been rebuffed by the RBI.

 

"...our target is the headline inflation wherein food inflation has a weight of about 46%. With this high share of food in the consumption basket, food inflation pressures cannot be ignored. Further, the public at large understands inflation more in terms of food inflation than the other components of headline inflation. Therefore, we cannot and should not become complacent merely because core inflation has fallen considerably," Governor Shaktikanta Das had said in August.

 

When asked to comment on whether the MPC should lower interest rates in December or February, Goyal on Thursday said "they are wise men and I'll leave it to their judgement".

 

Commenting on the recent spike in inflation, the commerce minister said it was not a surprise, with the RBI having predicted the same in October.

 

"At the same time, we all recognise that we are going to see that falling again by December or January. We are all smart enough to know what is happening, what the base effect is, what are the factors, what was the festival demand," he said.

 

Amid talks of subdued consumer demand, Goyal seemingly suggested that companies should consider lowering their prices and sacrificing some margin. "If they become more competitive in their pricing, I am quite sure they can capture much bigger markets, get much better profits. At least we in government don't work on a 'quarter-se-quarter-tak' philosophy... I think it's time investors also looked at the long-term and not panic on every quarter."  End

 

Reported by Siddharth Upasani

Edited by Avishek Dutta

 

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