If inflation continues to decline, conditions are expected to be favorable for interest rate cuts

Mumbai: If inflation continues to decline, conditions are expected to become favorable for a cut in interest rates, Ashima Goyal, one of the three external members of the Reserve Bank of India's Monetary Policy Committee (MPC), said in an interview.

While most estimates point to a rebound in the October-December quarter, so wait and see. His opinion came after the minutes of MPC's 6-8 February meeting were released.

In the MPC meeting held in the first week of February, Goyal voted in favor of retaining the interest rate. However, another outside member, Jayant Verma, favored a cut in interest rates.

The Reserve Bank has estimated inflation at 4.50 percent for the next financial year, which provides scope for a cut in interest rates.

The Reserve Bank has predicted retail inflation to fall to 4 percent in the July-September quarter and rise again to 4.60 percent in the subsequent quarter. Inflation fell to a three-month low of 5.10 percent in January.

In response to a question whether the present 6.50 percent repo rate is appropriate when the country is witnessing strong economic growth, he said that the balanced policy rate is high during the boom period.

But inflation is the most important factor. If inflation remains significantly low, a repo rate of more than two percent will be considered too high.

For the last three years, India has achieved an economic growth rate of more than seven percent. The growth rate is expected to be seven percent in the next financial year as well. Along with this, inflation has remained above the target of 4 percent for the last fifty-two months.