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Amidst industry clamour for further policy rate cuts in a softening inflation rate environment, Finance Minister Arun Jaitley on Friday put the ball in RBI’s court.
He expressed hope that the central bank and the soon-to-be-formed monetary policy committee will factor this trend at its next monetary policy review meeting on October 4.
Both the RBI and MPC need to “collectively” factor in recent developments on the retail inflation side and take a pragmatic decision, Jaitley said.
“We must appreciate that RBI is a responsible institution. We should not only wait for its decision but also trust its judgment for taking an appropriate one,” Jaitley told newpersons after his meeting with chief executives of public sector banks in the Capital.
He was responding to a query on whether a situation has arisen to further cut policy rates given that consumer price index (CPI)-based inflation has softened to 5 per cent levels.
In the monetary policy review last month, the RBI had maintained status quo on key rates citing upside risks to the 5 per cent inflation target for March 2017.
Retail inflation eased to a five-month low of 5.05 per cent in August. This softening, coupled with the 2.4 per cent contraction in factory output for July, has revived hopes for a rate cut by the RBI on October 4.
The government had in July notified a 4 per cent inflation target for the next five years. A margin of plus or minus 2 per cent to this target has been allowed.8
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