The Reserve Bank has categorically stated that there will not be any cut in interest rates in the near future as retail inflation continues to be high. RBI governor Shaktikanta Das said it would be premature to talk about rate cuts until the 4 percent inflation target is achieved on a durable basis. The inflation rate based on the consumer price index, the main yardstick for the central bank’s policy-making, has remained high in the last few years. It averaged 6.7 percent in 2022-23, way above 5.5 percent in 2021-22 and 6.2 percent in 2020-21. It has moderated from the peak of 7.8 percent during the initial stage of the Russia-Ukraine war. During April-December 2023, it stood at 5.5 percent. The governor believes retail inflation is likely to dip to 4.5 percent in the next financial year.
In this election year, the government would like to see inflation down, bringing some solace to the masses. Recent reports suggest the government is mulling a hefty cut in petrol and diesel prices to tame the rate. That is an unavoidable pre-election ritual in the country. The three oil marketing companies—IOC, HPCL and BPCL—which are under the government’s administration, continue to hold a sway over the domestic market. The three companies’ cumulative net profit has reportedly seen a remarkable 4,917 percent increase in the first six months of 2023-24 over the first half of the previous financial year. Surely, there is a lot of room for a substantial cut.
The governor said the RBI’s focus was on remaining actively disinflationary. During the 10 months between May 2022 and February 2023, the RBI raised the repo rate by 2.5 percentage points to 6.5 percent to bring inflation under control. It has paused hikes since then. What is troubling the central bank is the possibility of recurring food price shocks that would put pressure on the rate. Experts are of the view that the inflation outlook will likely be influenced by food prices in the future. Das is confident that India’s GDP growth will touch 7 percent in the next financial year and he counts on the strong economic momentum. This would give the RBI adequate room to prioritise managing the inflationary trends. The taming of inflation will also lead to a spurt in discretionary consumer spending, helping the economy further.
