‘Increased borrowing will hamper interest rate cuts’

March 27th, 2009 - 7:09 pm ICT by IANS  

New Delhi, March 27 (IANS) The high government borrowing targets will leave very little room for interest rate cuts, Cabinet Secretary K.M. Chandrasekhar said Friday, adding that the troubled time is yet to come for the Indian Economy.
“The high borrowing will leave little fiscal headroom for interest rate cuts,” Chandrasekhar, the country’s highest-ranked bureaucrat, told reporters on the sidelines of the annual summit of the Confederation of Indian Industry (CII).

At the same time, he said, private banks were not doing enough to bring down interest rate.

“So far as the public sector banks are concerned, I am going to hold a meeting with them by early April. The RBI (Reserve Bank of India) has been continuously cutting the repo, reverse repo rates and the cash reserve ratio and several banks have responded,” Chandrasekhar said.

“There is a contraction in demand, which is a major concern. The recent reduction of repo rate by the RBI may not trigger enough liquidity in the market but will certainly trigger demand,” Chandrasekhar added.

Private banks may be asked to attend the meeting, he added.

The government has plans to borrow Rs.360,000 crore (about $71 billion) in the next financial year. Of this, Rs.240,000 crore will be borrowed by September-end.

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