There is room for rate cut: Basu
16 Jun 2012 12:05 AM GMT
Ahead of the mid quarter review of the RBI’s monetary policy, chief economic advisor Kaushik Basu on Friday said there was scope for cut in interest rates as core inflation has come down a bit.
‘One thing has to be kept in mind that while inflation has gone up quite a bit, core inflation is holding where it was. In fact, it has gone down a tiny bit. Usually, monetary policy is directed towards core inflation... There is a leg room indeed for a rate cut,’ Basu said on the sidelines of a IMI event here. He said the Reserve Bank of India has a very tough act to undertake in it monetary policy review to be announced on 18 June, ‘because inflation has not gone down quite as much as growth has’.
The country’s growth has fallen to a nine-year-low of 6.5 per cent in the 2011-12 fiscal, while inflation remained close to the double-digit mark for entire 2011. In May, inflation rose to 7.55 per cent from 7.23 per cent in the previous month.
RBI had cut key lending rates by 50 basis points to 8 per cent after consecutively raising it 13 times since March 2010 in its bid to tame inflation. Also since January, the RBI has resorted to injecting liquidity into the financial system, by reducing cash reserve ratio for banks. Besides, it has called for fiscal steps by the government to combat inflation.
RBI has projected inflation to be around 6.5 per cent by March 2013, with a caution that it would remain sticky and there is a need to arrest the decline in economic growth.
‘One thing has to be kept in mind that while inflation has gone up quite a bit, core inflation is holding where it was. In fact, it has gone down a tiny bit. Usually, monetary policy is directed towards core inflation... There is a leg room indeed for a rate cut,’ Basu said on the sidelines of a IMI event here. He said the Reserve Bank of India has a very tough act to undertake in it monetary policy review to be announced on 18 June, ‘because inflation has not gone down quite as much as growth has’.
The country’s growth has fallen to a nine-year-low of 6.5 per cent in the 2011-12 fiscal, while inflation remained close to the double-digit mark for entire 2011. In May, inflation rose to 7.55 per cent from 7.23 per cent in the previous month.
RBI had cut key lending rates by 50 basis points to 8 per cent after consecutively raising it 13 times since March 2010 in its bid to tame inflation. Also since January, the RBI has resorted to injecting liquidity into the financial system, by reducing cash reserve ratio for banks. Besides, it has called for fiscal steps by the government to combat inflation.
RBI has projected inflation to be around 6.5 per cent by March 2013, with a caution that it would remain sticky and there is a need to arrest the decline in economic growth.
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