New Delhi: India’s central bank has room to cut interest rates further with inflation expected to remain under control in the coming months, the country’s top economic adviser said on Tuesday.
Arvind Subramanian said India’s adequate food stocks would help contain inflation even if the upcoming monsoon rains, which are vital for crops throughout the country, are weak.
“The inflation forecast is lower than the RBI target so it has implications for interest rates,” Subramanian said at a press conference to mark Prime Minister Narendra Modi government’s first year in power.
“It is possible to contain [inflation] going forward even if the monsoon is not going to be as good,” he said, adding that there were signs the economy “is picking up”.
The Reserve Bank of India (RBI) is tipped to cut rates at its next meeting on June 2, with retail inflation cooling to a four-month low in April of 4.87 per cent.
The RBI has already cut rates twice this year in an attempt to encourage lending to businesses and boost economic growth to help create jobs for millions of young people.
But it kept rates on hold at the last meeting, citing inflation concerns and the failure of banks to pass on the cuts to customers.
RBI governor Raghuram Rajan has made controlling inflation a priority, setting a target of bringing it consistently below six per cent by January next year.
Rising food prices are a critical issue in India where even minor increases cause hardship for tens of millions of poor.
Weather forecasters predict the monsoon — crucial for India’s 120 million-odd farmers, many of whom lack access to irrigation — will arrive around May 30.
But there may be less rain than normal this summer because of the possible emergence of the El Nino weather phenomenon, which threatens farm output.
