The finance ministry welcomed an inter-meeting rate cut by RBI, saying it reflected easing inflation concerns and vindicated the government’s efforts to achieve economic growth without stoking inflation.
The RBI cited lower than expected inflation, weak crude prices and weak demand, as well as the government’s commitment to sticking to a fiscal deficit target.
Deputy Finance Minister Jayant Sinha also told Reuters that the quarter-point rate cut would mark an “inflection point” after a period of high interest rates.
The wholesale price index for December, released on Wednesday, rose just 0.11 per cent year-on-year compared with a 0.6 per cent jump forecast by economists in a Reuters poll. Wholesale prices were unchanged in November.
Mr. Jayant Sinha said the decision was driven by declines in both actual and expected inflation, and not by any concerns that India’s economic recovery was losing traction.
It is a timely move by RBI and is in keeping with the way inflationary pressures have eased. The next rate cut would be contingent on the fiscal consolidation. We expect the next rate cut to be in the first quarter of FY2016, between April and June and will be of 50 basis points