‘Absolutely flawed…’: RBI should boost growth with rate cut, says Union Minister Piyush Goyal; Governor Das responds

The Reserve Bank of India (RBI) should cut the key benchmark interest rates to boost economic growth and look through the food prices while deciding on monetary policy, Union Minister of Commerce and Industry Piyush Goyal said. He was speaking at an event in Mumbai on Thursday, November 14, according to Reuters news agency. 

According to Reuters, this is the first time a government minister has supported the appeal to re-examine the country's inflation-targeting framework.

“I certainly believe they (RBI) should cut interest rates. Growth needs a further impetus,” Piyush Goyal told the news portal, also stating that it's an “absolutely flawed theory” to consider food inflation while deciding on rates.

Piyush Goyal clarified that these statements were his personal views and not those of the government. He highlighted a similar suggestion by V Anantha Nageswaran, the chief economic adviser (CEA) of India, in his Economic Survey earlier this year. 

The Economic Survey of 2023-24 stated that India's monetary policy framework should consider targeting inflation that excludes food, which is influenced more by supply than demand.

The nation's retail inflation rose to a 14-month high in October, primarily driven by a hike in vegetable prices. This has reduced the hopes of an interest rate cut from RBI next month.

The central bank monitors and targets CPI-based inflation and currently mandates keeping it at 4 per cent with a tolerance band of 2 per cent points on either side. The RBI has been firm on this policy stance. 

“The public at large understands inflation more in terms of food inflation than the other components of headline inflation,” RBI Governor Shaktikanta Das said in August, according to the news report.

“Therefore, we cannot and should not become complacent merely because core inflation has fallen considerably,” he said.

Governor Das Responds

The Reserve Bank of India (RBI) Governor Shaktikanta Das refused to comment on Union Minister Piyush Goyal's suggestion for a rate cut and reinforced that the rate-setting panel will take an appropriate call on it at its next meeting in December, news agency PTI reported on Thursday. 

“The Indian economy is sailing smoothly, powered by buffers like strong macroeconomic fundamentals, a stable financial system and a resilient external sector,” Das said. 

Das said that RBI's “neutral” stance from the “withdrawal of adoption” stance adopted at its last meeting in October provides “greater flexibility and optionality to act in sync with the evolving conditions and the outlook.”

According to data released on November 12, India's Consumer Price Index (CPI) inflation crossed the 6 per cent mark, reaching 6.21 per cent in October 2024.