India Needs Lower Interest Rates, Finance Chief Jaitley Says

  • Inflation is under control compared with a few years ago
  • Central bank will take "balanced view" in decision next week

India needs lower interest rates, and the central bank must decide how much to cut, Finance Minister Arun Jaitley said.

"India obviously does need cuts but to what extent, I think, is a prerogative of the central bank and they will factor in all these concerns," Jaitley said in an interview with Bloomberg Television in Hong Kong. "Indian inflation is under control," he added, contrasting recent numbers with double-digit figures just a few years ago.

Arun Jaitley
Arun Jaitley
Photographer: Xaume Olleros/Bloomberg

Central bank Governor Raghuram Rajan last month resisted pressure from the Finance Ministry to ease policy. He left borrowing costs unchanged at 7.25 percent at an Aug. 4 meeting after three cuts this year to meet his inflation target of 6 percent by January. The next meeting is on Sept. 29.

Since last month, data has shown that consumer price gains slowed to 3.66 percent in August -- below the central bank’s 6 percent target for January -- as oil has tumbled below $50 a barrel and global food costs fell.

"Commodity prices have weakened since the last time they met in August and then you have external risks that have abated," said Radhika Rao, an economist at DBS Bank Ltd. in Singapore. "So these factors put together do make a clear case for RBI to lower rates. It is like another window that has opened up for them to act this quarter."

Sectors including real estate, manufacturing and infrastructure are "anxiously looking up" and want more rate cuts, Jaitley said. "Any finance minister who wants economic growth would love more, but then I’ve said this is a view on which the Reserve Bank will take a very balanced view."

India’s $2.1 trillion economy is set to expand over 7 percent in the year through March, among the fastest growing in the world. Even so, investors are starting to question Prime Minister Narendra Modi’s ability to push through reforms as opposition lawmakers block key proposals like a goods-and-services tax.

The benchmark S&P BSE Sensex index has lost 4.7 percent this year after a 30 percent gain in 2014. The rupee has lost 4 percent against the dollar this year.

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