RBI might easen out interest rates if inflation subsides
By Joseph Samson
Aug 17, 2012
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Banking and monetary regulator, the Reserve Bank of India (RBI) has stated that inflation rates would be the decisive factor while assessing a reductionin policy rates (repo rate and reverse repo rate).

July end wholesale price index (WPI) inflation level of 6.87% was less than the June's 7.25%, but RBI would only think of reducing rate cut if the inflation level reaches 6% or less. Earlier last month, C. Rangarajan, Chairman to PM's Economic Advisory Council (PMEAC) also stated consistent inflation as a barrier to reduce interest rates.

"Interest rates too fall when inflation drops, (RBI) will assess if the inflation fall is sustainable," said KC Chakrabarty, Dy Governor RBI. Mr. Chakrabarty added that 5% inflation level would be the comfort zone for deciding a reduction in rates.

The RBI would conduct a quarter review of the monetary policy on September 17. In its last policy review, mainly because of the high inflation, the RBI kept the policy rates constant. However, it reduced statutory liquidity ratio (SLR) by one percent.

Mr. P. Chidambaram on taking over the Finance Ministry earlier this month, stated higher interest rates " inhibit the investor and are a burden on every class of borrowers." He further added measures would be taken to bring down interests to make credit more affordable.


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