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Decision on policy rate to depend on inflation, rupee value: RBI

PTI | Last Updated: Wednesday, November 13, 2013 - 21:24

Mumbai: The Reserve Bank Wednesday said any change in benchmark interest rate in its next month's monetary policy review will depend upon the price situation and other macro economic factors, including the value of rupee.

"We will watch the incoming data carefully, especially looking for the effects of the harvest on food prices as well as the second round effects of fuel price increases and exchange rate depreciation, before we make further decisions on interest rates," RBI Governor Raghuram Rajan said here.

RBI, which raised the key policy rate (repo rate) by 0.25 percent twice in the recent past to check inflation, is scheduled to come out with mid-quarter monetary policy review on December 18.

Rajan said: "Markets are worried about what these (economic) data mean for policy rates. As I have said before, the RBI is concerned about the weak economy as well as high inflation.

"We believe the weak economy, increases in food supply, and recent policy rate hikes will provide a disinflationary impetus over time, and recent data do not dispel this view."

He said it is important for RBI to clarify its interpretation of economic events and the likely direction of policies at times of uncertainty "so that the market worries about the right things and does not get into a tizzy about the wrong ones".

As per the government data, the industrial output grew by a meagre 2 percent in September, while the retail inflation has entered in the double digit with October figure at 10.09 percent.

Rupee, which recovered after touching lifetime low of 68.85 to the US dollar on August 28, has against started declining. Today it closed at 63.30 against the dollar.

The economic growth has slowed down to 4-year low of 4.4 percent in the first quarter of the fiscal, raising the demand for rate cut to boost growth.

The GDP data for the second quarter is scheduled to be released on November 29.

First Published: Wednesday, November 13, 2013 - 21:24
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