RBI may not signal rise in interest rates: PMEAC

Last Updated: Wednesday, October 14, 2009 - 20:42

New Delhi: The RBI is not likely to hike
interest rates in its monetary policy review on October 27
even as inflation is expected to rise to 6 per cent this
fiscal-end from 0.7 per cent at present, the Prime Minister`s
Economic Panel said on Wednesday.

"I don`t think the RBI will revise interest rates in the
policy review... As far as the monetary policy is concerned,
it has followed an accommodative policy, and unless inflation
pressures are very strong, there may not be any change in the
stance," Prime Minister`s Economic Advisory Council (PMEAC)
Chairman C Rangarajan told reporters.

He said the RBI might wait to make any change in the
policy rates.

The former RBI Governor further said prices will begin
to rise from now on, mainly due to the low base of last year
and rising food prices.

"By the end of the year, you will get an inflation rate
even on wholesale price index of about 6 per cent," he added.

Inflation has been on the rise on the back of rising
food prices and stood at 0.70 per cent for the week ending
September 26.

Rangarajan said there is always a seasonal decline in
prices in November and December, adding that "one might want
to wait and see whether the seasonal decline occurs or not,
and take action after the behaviour of prices."

Rangarajan also said that RBI could end its open-market
operations - under which it manages liquidity in the market
against government securities.

As the Indian economy started getting impacted by the
global financial crisis, RBI cut its short-term lending rate
(repo) by 4.25 percentage points to 4.75 per cent and
borrowing (reverse repo) by 2.75 percentage points to 3.25 per

Besides, it cut the requirement for banks to keep a
portion of their deposits in the central bank (CRR) by four
percentage points to 5 per cent to unleash liquidity in the

Rangarajan also said the government`s fiscal deficit
estimate of 6.8 per cent in the current fiscal and 6.2
in 2008-09 is not sustainable.

"I certainly believe that the fiscal deficit of the
order that we have seen last year and current year is not
something that can be sustained so some efforts should be
made to bring it down," he said.

To fund the fiscal deficit, the government has announced
borrowing programme to the tune of Rs 4 lakh crore in 2009-10.

"I do think private demand will pick up next year and the
borrowing programme of this order could run into serious
problem and could push up interest rate," he added.

Bureau Report

First Published: Wednesday, October 14, 2009 - 20:42

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