Jaitley to meet Rajan on Dec 1; to nudge for rate cut

Finance Minister Arun Jaitley is likely to impress upon RBI governor Raghuram Rajan the need for a cut in interest rate when he meets him on Monday ahead of the central bank's bi-monthly monetary policy review.

With expectations of gross domestic product growth moderating in the second quarter, the government is keen to give a fillip to the economy, particularly, when the inflation has come down to multi-year low.

Sources said Rajan will make the customary call on the Finance Minister on Monday, a day before he presents the policy.

Jaitley they said may nudge the central bank chief to lower cost of capital to prop up growth.

RBI which has kept policy rates unchanged for almost 10 months citing high inflation despite persistent demand from industry and government for a cut to boost economic activity, is slated to review monetary policy on December 2.

Sources said Jaitley, who is closely watching RBI moves, feels a rate cut will have positive impact on home and auto loans.

In an interview to PTI last week, Jaitley had expressed hope that the RBI will move in the direction of making the cost of capital reasonable to help perk up economy.

"The cost of the capital must be reasonable . . . If you are unable to infuse liquidity or unable to provide capital which is cheaper then even if you have opened out (economy) that itself won't be enough. So it is a chain of events which has to take place," he had said.

". . . it's their (RBI) job to balance rates with inflation. I am sure they will do it competently. But the fact is this is the direction we have to take . . . we are slowly but surely moving in that direction," he had said.

Inflation based on the Wholesale Price Index cooled to a 5-year low of 1.77 per cent in October driven by softening prices of fuel and food items.

At the same time, retail inflation, based on Consumer Price Index, also eased to 5.52 per cent at end of October.

Image: RBI Governor Raghuram Rajan; Photograph: Reuters