‘Falling commodity prices, easing inflation will help RBI consider rate cut’

Mumbai, April 30:  

Amid falling commodity prices and easing inflation, the Ministry of Finance has again pitched for an interest rate cut by the Reserve Bank of India (RBI) in it annual monetary policy on May 3.

“We would be happy if the RBI continues the trend of softening the rates. To what extent, we would leave it to the wisdom of RBI,” Arvind Mayaram, Secretary, Department of Economic Affairs, Ministry of Finance, today said on the sidelines of a conference organised by FICCI-Asian Development Bank in Mumbai.

According to him, it’s not just the fall in commodity prices but inflation has also come down. “It (inflation) is coming down significantly. So we do believe there is some case for positive thinking on the interest rates,” Mayaram said.

In addition, good monsoon with an estimate of rabi crops doing well will further ease inflation, he added.

Inflation-indexed bonds

The Government is likely to issue inflation-indexed bonds (IIBs) next month. “The RBI is working on the details and they will come out with a programme for issuing them,” Mayaram said.

IIBs have been designed primarily to provide instruments to protect investors from inflation and give an instrument which is also productive in nature.

“There is also large demand for gold because it is seen as an inflation-indexed instrument. Therefore, we believe for the middle-class and poor, there should be another instrument which has almost the same characteristics (as gold) which provides them comfort and such that their savings are protected from inflation,” he said.

FDI, FII policies

On FDI and FII policies, Mayaram said the Government was looking at cleaning the definition of FDI and FII flows because “there are some grey areas and there has to be a clear definition”.

“The Government is reviewing the FDI policy. And therefore we need to see the steps to increase the FDI flows which are necessary for the country especially in the light of the fact that our current account deficit runs high and it can only be financed through capital goods,” Mayaram said.

“In capital flows, we would wish there is higher FDI as it is long-term capital…so we need to encourage FDI and try and remove the impediments if any, across all sectors,” he said.

Keywords: Inflation, India's economy, India's GDP growth, inflation, India's GDP forecast, headline inflation, repo rate cut, RBI monetary policy review, Arvind Mayaram,