With two ‘surprise’ rate cuts in less than 60 days, the Finance Ministry expects equated monthly instalments (EMI) on loans, such as for housing and automobiles, to come down. The Ministry has also tried to clear the air on the reported differences between the Finance Minister and the RBI on the rate cut.

On Wednesday, the RBI cut the repo rate (the rate at which banks borrow from the central bank) by 25 basis points, taking the total cut this year to 50 basis points. However, after the previous rate cut, barring few small banks, none lowered the base rate to provide relief on EMIs.

“We have said in Parliament that we are pursuing a very prudent fiscal consolidation roadmap. Our aim is to move growth onto a sustainable, non-inflationary path... We are in a situation where we see EMIs coming down,” Minister of State for Finance Jayant Sinha told reporters here.

He said the central bank has appreciated the Budget’s ‘fine balance’, adding that “it is a welcome step for all citizens of India as everyone is looking for near-term boost in the economy.”

On same pitch Chief Economic Advisor Arvind Subramanian said the rate cut is consistent with what was said in the Economic Survey and the Budget on the outlook for inflation and the economy.

“It shows that the RBI and the government are on the same page in terms of how we view the economy. It also means that the Budget can be seen as conducive to non-inflationary growth,” he added.

His statement appears to put a lid on the ‘so-called’ differences between Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan.

Jaitley, on a number of occasions, has pitched for a rate cut as inflation was going down. In December, he made headlines when he said that the cost of capital, in recent months or years, is the singular factor that contributed to the slowdown of manufacturing growth.

However, the next day Jaitley clarified that he had not referred to the RBI.

Rating agency Subramanian said global rating agencies should look at upgrading their stance on India’s credit outlook.

Referring to the Railway Budget, General Budget, Economic Survey and rate cuts, he said all these suggest that the Indian economy is on its way to gathering a healthy momentum.

“The outlook looks good because it is backed by data. It is backed by reforms, which are going to hopefully push forward the growth. If the outlook is looking good, the rating agencies should draw their lessons from that,” he added.

Related Topics