India’s economic growth needs more affordable interest rates, minister says

NEW DELHI (Reuters) – India’s economic growth requires “far more affordable” bank interest rates, the finance minister said on Monday, adding New Delhi was committed to measures to ensure the economy remained on course.

“At a time when we want industries to ramp up and build capacities, bank interest rates will have to be far more affordable,” the minister, Nirmala Sitharaman, said at an event in Mumbai.

Last week, the nation’s trade minister said the Reserve Bank of India (NS:BOI) (RBI) should cut interest rates to boost economic growth and look through food prices while deciding on monetary policy.

The comments came after a surge in retail inflation, largely driven by a jump in vegetable prices, dashed hopes of an interest rate cut by the RBI in December.

“Inflation gets actually very, very volatile because of the supply demand constraints,” Sitharaman said, while refusing to weigh in on whether perishable items like food should be considered in the nation’s inflation targeting framework and while deciding on monetary policy.

Earlier this year, India’s top economic advisor said India’s monetary policy framework should consider targeting inflation that excludes food, the prices of which are more influenced by supply than demand. The trade minister, Piyush Goyal, backed the suggestion.

Persistently high food inflation has also squeezed middle class budgets, slowing urban spending in the past three to four months and threatening the country’s brisk economic growth.

Sitharaman said there was no cause for undue concern and the government was committed to measures needed to ensure the Indian economy remains on course.