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Lower inflation will help RBI consider rate cut: Mayaram

Last Updated: Tuesday, April 30, 2013 - 15:20

Mumbai: Exuding confidence of clocking over 6 percent growth this fiscal, Economic Affairs Secretary Arvind Mayaram on Tuesday said inflation will cool further helping the Reserve Bank to continue with an easy policy regime.

"We would be happy if the RBI continues the trend of softening the rates. To what extent, we'd leave it to the wisdom of the RBI. We do believe that there's a case for continuing with the easing," Mayaram told reporters on the sidelines of a Ficci event here.

The call for rate cut comes ahead of the annual monetary policy announcement scheduled for Friday, wherein it is widely expected that the apex bank will cut lending rates by 0.25 percent as inflationary pressures have eased much more than its projected levels.

"We believe in the current year, we will grow at over 6 percent, in the next year 7-7.5 percent and year after that we are quite confident that the economy will go back to its potential growth rate of 8 percent," said Mayaram.

However, the World Bank today scaled down its GDP forecast to 6.1 percent for this fiscal, from a high of seven percent it had projected a few months back.

He said headline inflation, which had come in at a three year low of 5.96 percent in March, will ease further from here on because of an expected "bumper" rabi (winter crop) harvest wherein food grain output will increase to over 250 million tonnes.

The Met Office estimate of a normal monsoon for the year will also help ease inflation, the top finance ministry official said.

It can be noted that the headline inflation number has been a major worry which resulted in RBI hiking and then holding on to its elevated interest rate stance, before showing signs of easing in the latter part of the past fiscal to support sagging growth, which is estimated to come at the decade's low of 5 per cent.

According to analysts and watchers, Governor Subbarao may go in for a 0.25 percent cut in the key lending rates on Friday, helped by the weakening oil and gold prices and the more than expected reduction in fiscal deficit.

Mayaram also expressed concern at the high current account deficit of over 5 percent and stressed on the need to correct trade imbalances. In the third quarter it hit a historic high of 6.7 percent.

He said there needs to be greater integration of the financial markets in the emerging "South-South" economies for mutual benefit.

Citing how the developed financial centres like London, and those in the US and Japan play an important role in determining capital inflows, Mayaram said the developing world has not been able to create such financial centres.

The country needs an investment of USD 1 trillion to help upgrade the infrastructure during the 12th Plan period and the private sector will have to raise half of this or USD 500 billion as the government alone cannot mop up so much funds, he said.

Mayaram said the proposed inflation-indexed bonds, a safe instrument for those looking for protection against inflation, will be launched next month and that the RBI is working on it.

Such bonds will help channel middle class savings into financial instruments and also reduce the dependence on gold, which is considered a hedge against inflation, he said.


First Published: Tuesday, April 30, 2013 - 15:16
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