The Reserve Bank of India will factor in domestic as well as global deflationary trends while deciding policy rates, said Jayant Sinha, Minister of State for Finance, on Thursday. A review of rates by the central bank is due later this month.

Putting his weight behind the deflationary concerns flagged by Chief Economic Advisor Arvind Subramanian on Wednesday, Sinha said India needs to be “mindful” and “watchful” of deflation.

“Powerful deflationary forces are at work in the global economy. India, of course, remains a very bright spot because we have growth, we have some inflation and we have robust underlying demand trends,” Sinha told reporters on the sidelines of 55th Annual Session of Automotive Component Manufacturers Association of India (ACMA) here.

Sinha also concurred with Subramanian’s views that the economy was not slowing and that it was well on course to record GDP growth of close to 8 per cent this fiscal.

“I am with the Chief Economic Advisor on this (GDP forecast of close to 8 per cent). We have substantially ramped up our public investments. The monsoon is also expected to be reasonably good,” Sinha said.

Asked if the central bank should cut policy rates sooner than the September 29 review meeting, Sinha said it was for the RBI Governor to take a call based on available data.

RBI Governor Raghuram Rajan is still unsure whether the softening retail inflation is an aberration or a trend and therefore in two minds on cutting the policy rate.

On the other hand, Subramanian has cautioned that India was moving towards deflation and “far, far away from inflation territory”.

The RBI has so far cut interest rate by 0.75 per cent this year in three tranches. It refrained from reducing the rate in the last bi-monthly monetary policy review, in August.

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