'It’s A Flawed Theory, RBI Should Definitely Cut Interest Rates': Piyush Goyal

Regarding the recent surge in Foreign Institutional Investor selling, Goyal advised that investors should focus on the long-term outlook rather than being swayed by short-term quarterly fluctuations

Union Commerce Minister Piyush Goyal stated on Thursday that the Reserve Bank of India (RBI) should indeed proceed with cutting interest rates. He argued that it is a misguided approach to base such a decision on food inflation alone, emphasising that this line of thinking is fundamentally flawed. 

"RBI must cut interest rates. It’s a flawed theory to consider food inflation for making a choice on cutting rates. This is my personal view and not that of the Govt," said Goyal at CNBC-TV18 Global Leadership Summit. He also expressed confidence that inflation will decrease by December.

"Inflation under Modi Government has been lowest since India's Independence," said Goyal.

Regarding the recent surge in Foreign Institutional Investor (FII) selling, Goyal advised that investors should focus on the long-term outlook rather than being swayed by short-term quarterly fluctuations.

India's retail inflation surged to a 14-month high in October, primarily driven by a sharp increase in vegetable prices. The country's annual retail inflation rate rose to 6.21 per cent in October, marking the first time in more than a year that inflation has breached the RBI target tolerance band of 2 per cent to 6 per cent. The central bank's inflation target is set with a medium-term goal of 4 per cent, but the October figure exceeded this range, raising concerns about price pressures in the economy.

In comparison, inflation stood at 5.49 per cent in September, a nine-month high. The sharp rise in inflation was particularly evident in the food segment, which accounts for nearly half of the overall consumption basket. Annual inflation for food items accelerated to 10.87 per cent in October, up from 9.24 per cent in September, primarily driven by rising costs of vegetables and other essential food items.

At a recent event, RBI Governor Shaktikanta Das expressed caution about any immediate interest rate cuts, stating that such a move would be "premature and very, very risky." He also highlighted that the central bank continues to see "significant risks" to the economic outlook, particularly in light of the inflationary pressures. 

This follows the decision in the previous monetary policy review, where the RBI's Monetary Policy Committee opted to keep the repo rate unchanged at 6.5 per cent. However, it shifted its stance to "neutral," signalling a more cautious approach moving forward.