New Delhi: The decline in global commodity prices will ease pressure on Indian companies and the government’s balance of payments, Ashok Chawla, economic affairs secretary, said on Tuesday.
The decline in commodity prices will give Indian companies “greater flexibility and leeway”, Chawla said. “It is also giving the government positive flexibility and variants in terms of the balance of payments position.”
Wait and watch: Economic affairs secretary Ashok Chawla. Ramesh Pathania / Mint
India’s inflation rate fell the most in at least 18 years in the week ended 1 November to 8.98%, giving the central bank, the Reserve Bank of India (RBI), room to make further unscheduled interest rate cuts. Inflation has fallen to the lowest level in five months as it dropped from a 16-year high of 12.91% in the week ended 2 August.
“On the whole, whether it is for the corporates, consumers or the government, it is apositive scenario,” Chawla said, referring to the decline in prices.
Union finance minister P. Chidambaram and RBI governor D. Subbarao have been loosening fiscal and monetary policy to cope with a liquidity shortage that began in September as the global financial crisis unfolded, putting pressure on India’s money and foreign exchange markets.
RBI has cut its benchmark lending rate to 7.5% from a seven-year high of 9%. It also pared the amount lenders must set aside as reserve to cover deposits by 3.5 percentage points in a month, freeing up as much as Rs1.47 trillion in cash to ease lending.
“Banks have to take a call on reducing interest rates,” Chawla said. “We have to wait and watch on key rates.”