The Indian Finance Ministry has said in its monthly review report that retail inflation has remained at a six-year low, giving the Reserve Bank of India (RBI) ample scope to further cut the repo rate.
Inflation based on the Consumer Price Index (CPI) has remained below the target level of 4% since February and in May it fell to 2.82%, the biggest decline in the past years.
In such a situation, it is expected that the upcoming Monetary Policy Committee (MPC) meeting, which is scheduled from August 4 to 6, may further reduce the repo rate. So far RBI has cut it by 1% this year. Due to low repo rate, loans become cheaper and common people get relief in monthly EMI, which increases demand and gives impetus to the economy.
The report also mentioned that there is a possibility of softening in crude oil prices globally, as OPEC and its allied countries have increased production by 5.48 lakh barrels per day in August.
In addition, despite the tax cut, the government’s revenue sources remain strong and capital expenditure is witnessing a steady increase, which also maintains stability on the fiscal front. Given all these factors, it is expected that both India’s monetary policy and inflation control will remain balanced in the coming months.