Ahead of RBI monetry policy review, Arun Jaitley pitches for interest rate cut

A day ahead of Reserve Bank meet, Finance Minister Arun Jaitley today pitched for easier monetary policy, arguing that high interest rates can make the economy sluggish. “The government has stuck to fiscal deficit commitments and inflation has been under control.

Therefore, I do hope that this movement will continue in order to make our economy more competitive with more competitive interest rates,” he said while addressing the CII Annual session.

Reserve Bank will hold its first bi-monthly monetary policy review for 2016-17 tomorrow. The finance minister also stressed that the debate on crucial economic issues, like interest rates, should move in the right direction in India, which is a “large and noisy democracy”.

“Take for instance responsible political groups taking a position to support high interest rates for something which is absolutely capable of making us a sluggish economy,” Jaitley said.

The finance minister said there are a number of challenges in a large and noisy democracy and the most important for institutions like government and industry is to make sure that the debate on issues moves in the right direction.

This will “enable Indian society as the world’s largest democracy and an aspirational democracy to add maturity to that debate”, he said. As regards retired persons who depend on interest income, he said their issues could be addressed by pension funds, which offer best returns.

Jaitley said national pension scheme is providing attractive returns, adding “people will have to look at these products”. In the long run, deposit and lending rates should come down in order to make the economy more competitive, he said, adding the direction of the debate has to be mature.

“The movement in last one year, as far as the interest rates have been concerned, has been downwards,” Jaitley said. The government has stuck to fiscal deficit consolidation path, pegging the deficit for the current financial year at 3.5 per cent of GDP. In 2015-16, the fiscal deficit will remain below the budgeted targeted of 3.9 per cent. As far as inflation is concerned, while WPI has been in negative zone for past 16 months, CPI is hovering in the range of 5-6 per cent.