Easing of rates depends on future inflation, growth: RBI

January 23rd, 2012 - 9:09 pm ICT by IANS  

New Delhi, Jan 23 (IANS) A day before it unveils the third quarterly review of its monetary policy, the Reserve Bank of India signalled it may not lower interest rates, saying any easing would depend on evolving growth-inflation dynamics.

“Monetary space to support growth exists, but pace of action will depend on evolving growth-inflation dynamics,” said the bank in the macroeconomic and monetary development document Monday.

The central bank had raised rates 13 times since the beginning of 2010 to combat runaway inflation. The repo rate or the interest the central bank levies on short-term borrowing by commercial banks stands at 8.5 percent.

In its last review in December, the RBI had halted its monetary tightening measures and said it might look at easing rates in the future depending on moderation in inflation.

Inflation has come down according to latest data. Based on the wholesale price index (WPI), inflation was down to a two-year low of 7.47 percent in December 2011, mainly because of constant decline in prices of food items.

According to a survey conducted by the the Federation of Indian Chambers of Commerce and Industry (Ficci), corporations are not hopeful of any easing in key interest rates.

“Notwithstanding the decline in inflation a majority of the respondents still believe that RBI may not go for a cut in repo rate in its Jan 24 monetary policy announcement,” said the Ficci report.

However, Commerce and Industry Minister Anand Sharma said it was about time the central bank started easing rates.

“We have been of the considered view in the commerce and industry ministry that the rates for the industry and investment should be lower. We have taken up this with the finance minister who has been receptive and positive,” Sharma told reporters on the sidelines of a business summit in Delhi.

The central bank on its part appeared keen to first make sure that the inflation situation was brought under control, although it reiterated Monday that it expected it to come down to 7 percent by March.

“Upside risks to inflation persist from insufficient supply responses, exchange rate pass-through, suppressed inflation and an expansionary fiscal stance,” RBI said.

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