Piyush Goyal Confident: RBI to Cut Interest Rates with Inflation in Check

Commerce and Industry Minister Piyush Goyal expressed optimism on Monday, anticipating a reduction in interest rates by the Reserve Bank of India (RBI) as inflation remains under control. Goyal highlighted the robust economic fundamentals of the country and emphasized the potential for a reversal of rate hikes in the near future.

Confidence in RBI’s Decision:

  1. Controlled Inflation: Goyal emphasized that the average inflation rate over the past decade in India has been around 5 to 5.5 per cent, indicating a strong economic performance.
  2. Historical Context: Reflecting on the best-performing decade, Goyal noted that the favorable economic conditions led to a significant drop in interest rates. He anticipates a similar trend following the recent challenges posed by events like the Ukraine crisis.
  3. Rate Hike Reversal: Despite interest rates experiencing a rise of 250 basis points over the last year and a half, Goyal is confident that the RBI will soon initiate a reversal of rate hikes.

Impact on Borrowing Costs:

  1. Corporate and Individual Borrowers: A potential reduction in the key short-term lending rate (repo) by the RBI would result in lowered borrowing costs for both corporate entities and individuals.
  2. EMI Implications: The decrease in interest rates could translate into lower Equated Monthly Installments (EMIs) for borrowers, positively affecting the overall cost of borrowings.

RBI’s Recent Policy Decisions:

  1. February 8 Policy: The RBI, in its latest policy announcement on February 8, maintained the key policy rate at 6.5 per cent for the sixth consecutive time, signaling stability in borrowing costs.
  2. Retail Inflation Projection: The central bank revised the retail inflation projection to 4.5 per cent for the next fiscal year, underscoring a positive outlook for inflationary pressures.
  3. Next Monetary Policy: The upcoming bi-monthly monetary policy is scheduled for April 5, where further decisions on interest rates will be announced.

Current Inflation Metrics:

  1. Consumer Price Index (CPI): In January, CPI stood at 5.1 per cent, down from 6.52 per cent in January 2023, indicating a moderation in inflationary pressures.
  2. Wholesale Price Index (WPI): WPI-based inflation eased to a three-month low of 0.27 per cent in January, primarily attributed to the moderation of food prices, including vegetables.

Government’s Economic Ambition: Goyal highlighted the government’s ambitious target of elevating the current USD 3.7 trillion economy to USD 30-35 trillion by the year 2047.

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