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New Delhi: Union Finance Minister Nirmala Sitharaman has stressed the need for banks to offer more affordable loan rates, echoing similar concerns raised by Commerce and Industry Minister Piyush Goyal about high borrowing costs.
Speaking at a State Bank of India event, Sitharaman highlighted that industries are finding it challenging to expand and build capacities due to expensive borrowing. “Industries need to ramp up and increase capacities. For this, bank interest rates should be more affordable,” she said.
This marks the second instance in recent days where a Union Minister has addressed concerns over lending rates, sparking further discussions on inflation, monetary policy, and economic growth.
Interest Rate And Inflation Concerns
The Reserve Bank of India (RBI) has kept the repo rate steady at 6.50 per cent since February 2023, citing persistent inflationary pressures. In October, retail inflation rose to 6.2 per cent, breaching the central bank’s target range of 2-6 per cent. Food inflation has remained a significant factor, dampening expectations of any immediate rate cuts.
RBI Governor Shaktikanta Das recently stated that reducing interest rates at this time would be “premature” and could pose risks. Since most floating-rate loans are tied to the repo rate, borrowers will only benefit from lower rates if the RBI revises its benchmark rate downward.
Piyush Goyal’s Perspective
Last week, Piyush Goyal questioned the rationale of considering food inflation when setting interest rates, calling it “misguided.” At a CNBC-TV18 event, he argued that food inflation stems from supply and demand issues, not monetary factors.
“Food inflation has nothing to do with interest rates. It is a supply-demand issue, not a monetary one,” Goyal said, clarifying that these were his personal opinions and not an official stance.
Responding indirectly at the same event, RBI Governor Das refrained from making specific comments but hinted that the central bank would address such matters during its monetary policy review in December.
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Excluding Food Inflation
The Finance Minister chose not to comment on proposals to exclude food prices from inflation calculations, an idea previously discussed in the Economic Survey for 2023-24. The RBI has emphasized the importance of including food inflation, given its substantial share of 46 per cent in India’s consumption basket.
Upcoming Monetary Policy Committee
The upcoming Monetary Policy Committee (MPC) meeting, scheduled from December 4-6, is expected to retain the repo rate at 6.50 per cent. Experts believe that despite global challenges and declining retail inflation, the central bank will focus on balancing growth and price stability.
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