Jaitley to nudge Rajan for rate cut before RBI policy meet

RBI is being widely expected to hold rates in its policy review

Finance Minister Arun Jaitley is likely to coax Reserve Bank of India (RBI) Governor Raghuram Rajan to cut interest rates when the two meet on December 1 in New Delhi ahead of the central bank’s monetary policy meeting a day later.

A senior finance ministry official, who did not wish to be named, told reporters Jaitley wanted Rajan to cut rates. RBI’s bi-monthly monetary policy meet on December 2 will take place against the backdrop of an expected moderation in gross domestic product growth in the July-September quarter, and inflation which has touched its lowest level in years.

It is customary for the RBI chief to call on the finance minister before every monetary policy meet.

India’s GDP growth was 5.7 per cent in the April-June quarter, after a below-five per cent growth rate in the previous two financial years. It is, however, expected to be around five per cent for the June-September quarter, with various polls pegging it between 5.1 per cent and 5.3 per cent.

Wholesale Price Index-based inflation cooled to a five-year low of 1.77 per cent in October, driven by softening prices of fuel and food items. At the same time, retail inflation eased to 5.52 per cent — a historic low — for the same month.

Such data has only increased the clamour for rate cuts among policymakers, industry, and market watchers.

“A rate cut is needed now. It can help the auto and housing sectors,” said the senior official cited above. The RBI has kept policy rates unchanged for almost 10 months. “The second quarter (of a financial year) is always challenging. The number could be lower than in the first quarter,” the official added.

Jaitley is scheduled to travel to Mumbai on Saturday for two industry events and may also meet Rajan there, the official noted. He added the finance ministry might extend the excise duty cuts beyond December 31 and till March 31, 2015 as industry continues to struggle with sluggish demand owing to high interest rates.

Jaitley had earlier extended the excise duty cuts, which were announced by his predecessor P Chidambaram, till the end of the calendar year. Additionally, the government might take a call on the constitutional amendments regarding the goods and service tax after the empowered committee meeting on December 12. The constitutional amendments Bill will be brought in the Cabinet before being introduced in Parliament.