Union Commerce Minister Piyush Goyal recently shared his opinion that the Reserve Bank of India (RBI) should reduce interest rates. He suggested that focusing on food inflation alone, which can be volatile, might not be the best approach when setting interest rates. Goyal emphasized that this view was his personal perspective, not an official government position. He also expressed confidence that inflation in India would ease by December.
Goyal pointed out that, under Prime Minister Modi’s government, inflation has been at historically low levels. In response to the recent sell-off by Foreign Institutional Investors (FIIs), Goyal advised investors to think in terms of long-term growth rather than reacting to short-term changes in the market.
In recent months, inflation has been rising in India. In October, the annual retail inflation rate (the rate at which consumer prices increase year over year) rose to 6.21%. This figure exceeded the RBI’s target range of 2% to 6%, marking the first time in over a year that inflation has gone above this band. The main driver of this increase has been a sharp rise in food prices, particularly vegetables, which make up a large part of the average consumer’s spending. Annual food inflation alone rose to 10.87% in October, up from 9.24% in September.
RBI Governor Shaktikanta Das, however, has been cautious about cutting interest rates in response to rising inflation. In October, he explained that lowering rates too quickly could be risky, given the uncertain economic outlook. In the RBI’s last monetary policy meeting, they decided to keep the repo rate (the rate at which the RBI lends to commercial banks) steady at 6.5% but adopted a “neutral” policy stance. This approach allows flexibility to either raise or lower rates in the future depending on economic conditions.
The All-India wholesale price index (WPI) inflation rate rose to 2.36% in October 2024 compared to 1.84% in September 2024, as reported by the Ministry of Commerce and Industry. This rate shows the year-over-year increase, while the month-over-month WPI increase was 0.97% from September to October.
According to the Office of the Economic Adviser, part of the Department for Promotion of Industry and Internal Trade (DPIIT), the October inflation is mainly due to rising prices in food items, manufactured food products, general manufacturing, machinery and equipment, motor vehicles, trailers, and semi-trailers.
The WPI for all commodities (using a 2011-12 base of 100) increased to 156.1 in October from 154.6 in September. In the manufactured products category, which holds a 64.23% weight, the index rose to 142.5 from 141.8. Within this group, the sub-index for textiles inched up to 135.9 from 135.8, while the index for wearing apparel increased to 153.9 from 153.5 in September.
The index for primary articles, which has a weight of 22.62%, saw a 2.35% increase to 200.3 in October from 195.7 in September. Conversely, the fuel and power category, holding a 13.15% weight, fell by 0.27%, with the index decreasing slightly from 146.9 to 146.5.
