C Rangarajan says it’s time for interest rate cuts as India’s inflation drops

C. Rangarajan, former Reserve Bank of India (RBI) Governor, is advocating for interest rate cuts as India experiences a slowdown in inflation. In an interview with CNBC-TV18, he noted that the RBI could consider reducing the repo rate, especially since inflation has decreased over two recent six-week cycles.

“The last two times, the inflation rate was below 4%; therefore, in some sense, if we cut the rate, we are following the market rather than leading the market. So if there is enough evidence to show that if that tendency will persist, I think we should do it,” the former governor said.

Rangarajan suggested a cautious approach: a 25 basis-point cut now, another 25 basis points later, or a more significant front-loaded cut of 50 basis points.

While some economists have been calling for a rate cut due to high actual interest rates, RBI Governor Shaktikanta Das opted to keep rates unchanged in August, citing persistent food inflation as a concern.Das has indicated that any decision to adjust real interest rates will depend on food inflation returning sustainably to a target of around 4%.

So far, the Consumer Price Index has dipped below 4% in July and August 2024, but the average retail inflation from April to August remains at 4.3%, with food inflation still exceeding 5%.

Even Chief Economic Adviser V Anantha Nageswaran believes the RBI cannot change food inflation with interest rate adjustments and has urged the central bank to loosen its strings and let lending rates slide.

Bankers know the Governor is taking a measured approach, and most economists interviewed by CNBC-TV18 anticipate the first rate cut to occur in December or later.

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