Cut in repo rates will prevent retail interest rates rising to 'unbearable levels', says MPC’s Ashima Goyal

RBI Governor Shaktikanta Das, in the latest monetary policy decision on June 7 announced that the benchmark interest rates remained unchanged at 6.5 percent.

A cut in repo rate will prevent retail interest rates rising to "unbearable levels", said Ashima Goyal, one of the three external members on the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC).

“While risk based pricing is required, a cut in repo rates will prevent retail interest rates rising to unbearable levels,” Goyal said in the minutes of the MPC's latest meeting that was held on June 5-7. She highlighted that there may be some stress in loans to the self-employed.

Also read: RBI MPC Minutes: Food inflation remains main factor behind slow pace of disinflation

If leverage is rising, Goyal said that lower interest rates will reduce costs and a possible indebtedness trap. “Despite some initial reduction after a repo cut, rising loan demand and slower deposit growth will tend to raise both loan and deposit rates,” she added.

RBI Governor Shaktikanta Das, in the latest monetary policy decision on June 7 announced that the benchmark interest rates remained unchanged at 6.5 percent. Four out of six MPC members voted in favour of the repo rate decision. Goyal, alongside Jayanth Verma voted for a 25 basis points rate cut in the June 2024 MPC.

Majority of the MPC members focused on withdrawal of accommodation with Goyal and Verma voting for a change in stance.

On the other side, majority of MPC members expressed caution on food inflation, which is slowing the pace of disinflation.

“Food inflation is the main factor behind the grudgingly slow pace of disinflation. Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation,” said RBI Governor Shaktikanta Das in the Minutes.

Further, Rajiv Ranjan said while core inflation has softened further, food inflation risks have remained elevated.