Khatwa (Jaipur): The Reserve Bank expects inflation to moderate further in the next 2-3 months that may lead to cut in interest rates by the Central Bank, RBI Deputy Governor K C Chakrabarty said Thursday.
"We are trying to bring down inflation ... There is a probability that inflation would come down in the next few months. In the next 2-3 months inflation should come down," he said after inaugurating a rural branch of ICICI Bank here.
Asked if there is a possibility of RBI reducing the policy rates in its mid-quarter policy review on December 18, Chakrabarty said repo rate will come down when inflation comes down.
He said the WPI inflation has come down from 10 percent.
Wholesale price index based inflation for October moderated to 7.45 percent from 7.81 percent in the previous month.
Stressing that high inflation is inimical to growth, the Deputy Governor said: "People are saying because of high interest rate, growth is coming down. What we are saying is the interest rate is high because inflation is high".
That's why RBI's first concern is to bring down inflation, he said, adding, "unless inflation comes down interest rate cannot come down".
In its last policy review in October, RBI had left repo rate unchanged. However, it reduced Cash Reserve Ratio (CRR) by 0.25 percent leading to injection of additional liquidity of Rs 17,500 crore into the banking system.
The CRR, or the portion of deposits banks have to park with the RBI, now stands at 4.25 percent, while the repo rate, at which RBI lends to the system, has been retained at 8 percent.
The reverse repo, at which RBI absorbs excess liquidity through borrowings from banks, remains at 7 percent. Following the monetary action by RBI on October 30, many banks ruled out immediate rate correction.
Asked about the current liquidity position in the banking system, he said, "it is comfortable".
On the issue of granting new banking licences, Chakrabarty said "RBI Governor has already made it clear that we should be assured of exit policy ... If we increase licences, we should have power to cancel their licence for not doing proper work".
It may be recalled that the government is in touch with the Opposition parties for amending the banking laws in the backdrop of suggestions received from the RBI.
The Banking Laws (Amendment) Bill, 2011, is likely to come up for consideration and passage in Parliament shortly.