The Reserve Bank of India (RBI) ought to push ahead with an interest rate cut at its policy meeting on September 29, even if the Federal Reserve decides to embark on a rate hiking cycle this week, says former deputy governor Subir Gokarn.
"The key driver of the Fed's decision is going to be domestic. Similarly, the key determinant of the Indian decision on interest rates must be what domestic conditions are," Gokarn, who is presently the director of research at the Indian arm of global think tank Brookings Institution.
"Our growth is a bit sluggish – and inflation is way, way down. I think the situation argues in favor of cutting rates," he said.
India's gross domestic product (GDP) growth fell short of expectations in the second quarter, reflecting a slowdown in the service sector that accounts for more than half of the $2.1 trillion economy. Growth slowed at an annual rate of 7 percent in the April-June period, down from a 7.5 percent expansion in the previous three months.
Consumer price inflation, meantime, eased to new low of 3.66 percent in August from a revised 3.69 in the previous month, largely on account of falling commodity prices.