FM raises hopes of interest rate cut

Asks RBI to take note of lower inflation

Finance Minister Arun Jaitley raised hopes of a rate cut on Tuesday by asking the Reserve Bank of India (RBI) to take note of the lower inflation print for July.

“Inflation is coming down. Hope RBI in its own wisdom takes note of that,” said Jaitley at an event held in Mumbai. In the third bi-monthly monetary policy review held earlier this month, the central bank had kept the repo rate or the rate at which banks borrow from RBI unchanged at 7.25 per cent. The next monetary policy review will be announced on September 29. Since the start of 2015, RBI has cut the repo rate by 75 basis points.

Meanwhile, the Consumer Price Index (CPI)-based inflation eased to 3.78 per cent in July compared with 5.40 per cent a month ago. RBI has set an inflation target of less than six per cent by January 2016 and four per cent (+/-2) by the end of the two years starting 2016-17.

Jaitley also highlighted that slow credit growth in the country was a challenge. “We have only few indications that are positive. There are challenges like the credit off take is slow,” he said. For the fortnight ended July 24, bank credit growth was 9.40 per cent year-on-year.  The slowdown in various sectors could impact the bank's stability to be leaders in growth, warned Jaitley.

On the positive side according to Jaitley monsoon so far has been okay. The weather department had said on Monday that monsoon rainfall deficit had widened to 10 per cent as a stren-gthening El Nino weather pattern trimmed rainfall.

In the recent past there has been a fall in commodity prices, particularly oil. According to Jaitley, this has created opportunity for transfer of wealth from producing to consuming nations due to which India stands to gain.

The finance minister has also urged public sector banks to be run professionally. "Government is determined that recapitalisation is the obvious that has to be done. But apart from that banks need to be run professionally and efficiently," Jaitley said.

The ministry is working to enable faster recovery through debt recovery tribunals, he said.