Nirmala Sitharaman calls for ‘affordable’ interest rates after Piyush Goyal

Union Finance Minister Nirmala Sitharaman has called for more affordable bank lending rates, joining Commerce and Industry Minister Piyush Goyal in highlighting concerns about the cost of borrowing.
The Finance Minister made her remarks at a State Bank of India event, and said that high borrowing costs were challenging for industries seeking to expand and build capacities.
“At a time when we want industries to ramp up and build capacities, our bank interest rates will have to be far more affordable,” said Sitharaman as quoted by livemint,com.
This is the second instance in the past few days when a Union Minister has addressed key lending rates, adding to ongoing discussions about inflation, monetary policy, and economic growth.
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has kept the repo rate unchanged since February 2023, citing persistent inflation pressures. Food inflation has remained a major concern, with retail inflation in October rising to 6.2%, the highest in 14 months and above the MPC’s target range of 2-6%.
The rise in inflation has dampened hopes of an interest rate cut in the near term. RBI Governor Shaktikanta Das has indicated that any reduction in rates at this stage would be “premature” and risky. Most floating-rate loans are tied to the repo rate, meaning that borrowers will only benefit from lower loan rates if the RBI cuts its benchmark rate.
Last week, Piyush Goyal also questioned the impact of food inflation on interest rate decisions, calling the link ‘absolutely flawed.’ Speaking at a CNBC-TV18 event, Goyal argued that food inflation is driven by supply and demand issues, not monetary factors.
“It’s flawed to consider food inflation while deciding interest rate structures. It has nothing to do with managing inflation but is a demand-supply issue,” Goyal said. He however, clarified that these were his personal views and not an official government stance.
RBI Governor Shaktikanta Das, speaking after Goyal at the same event, refrained from making specific comments about the suggestion to lower rates but hinted that the central bank’s upcoming monetary policy review in December would address these matters.
Sitharaman chose not to comment on whether perishables should be excluded from inflation calculations, an idea floated in the Economic Survey for 2023-24. The suggestion had earlier sparked debate, with the RBI Governor stating in August that food inflation could not be overlooked, given its significant share of 46% in India’s consumption basket.
The Economic Survey proposed that excluding food prices could offer a clearer picture of core inflation trends. However, the RBI maintains that food inflation is an essential component of India’s inflation-targeting framework, given its impact on household spending.
The upcoming MPC meeting is set to take place from December 4 to 6. Experts largely predict that the repo rate will stay unchanged at 6.50%, even amid global economic challenges and declining retail inflation.