Government downplays inflationary concern, roots for RBI rate cut

Hours before RBI Governor Raghuram Rajan announces third bi-monthly monetary policy of the fiscal, a top Finance Ministry official has said the central bank should not hesitate in cutting interest rate just on inflationary concerns.

The government, he said was keen on brining down cost of borrowing, and RBI cutting its key policy rate will be a trigger for such a move that will boost investment and growth.

The Reserve Bank will announce the monetary policy review at 11 am today.

The official said wholesale inflation (WPI) is in negative territory since November and international oil prices, the biggest dampener on domestic commodity prices, are multi-year lows, giving comfort to developing economies like India.

Bankers, however feel RBI will be conservative in reducing rates further as retail inflation, its prime most concern, continues to rule at eight-month high of 5.4% in June.

"Inflation cannot be a primary consideration for RBI not to cut rate," the official said, making a strong case for interest rate cut by the RBI tomorrow.

International crude oil prices have halved to US $51-52 per barrel over the past one year, leading to several rounds of cut in retail prices of petrol and diesel, a key input to inflation.

India Inc is pitching for a rate cut because of low wholesale inflation and slowdown in industrial growth.

In review on June 2, RBI had cut repo rate 0.25% for the third time in 2015.