FinMin wants RBI to lower rates, boost domestic demand

Ahead of the monetary policy review by the Reserve Bank of India early next month, the Finance Ministry is hoping for a further cut in key rates to boost domestic demand.

“Inflation has picked up in the last one month but all the analyses we had done was based factoring in a rise in inflation. The medium-term inflation target is kept at 4 per cent,” a Finance Ministry source said.

The comments come ahead of the bi-monthly monetary policy review on October 3 and 4. To spur growth, the Monetary Policy Committee, at its last review in August, had reduced the repo rate by 0.25 per cent to 6 per cent.

But since then, official data have pointed to a pick up in prices, with retail inflation at a five-month high of 3.36 per cent in August while wholesale inflation was at a four-month peak of 3.24 per cent.

The government is hoping that with growth slowing down, an easier monetary policy along with more measures will boost the economy. “The response has to be across the board with interest rates, exchange rate and creating more demand,” said the source.

An internal review has shown that the manufacturing sector continues to lag due to the impact of demonetisation, rollout of GST and appreciation of the rupee.

“A number of manufacturing sectors have been affected over the last two to three quarters. This is also corroborated by the substantial increase in manufacturing imports,” said the source.

Last week, Finance Minister Arun Jaitley had conducted two rounds of meetings to take stock of the economic situation and had discussions with Commerce and Industry Minister Suresh Prabhu and Railway and Coal Minister Piyush Goyal along with senior officials.

Sources said the government is looking into all the issues that have arisen and will respond adequately when needed.

The economy grew at a three-year low of 5.7 per cent in the first quarter of the fiscal year and the second volume of the Economic Survey has warned of a downward risk to its earlier forecast of 6.75 to 7.5 per cent GDP growth for 2017-18.