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Economy Jul 17, 2012

Policy rate alone not responsible for slowing growth: RBI

Mumbai: Amid widespread demand for cut in interest rate in the forthcoming monetary review to boost growth, RBI today said the policy rate is not the only reason for slowdown in investments and the economy.

"The Reserve Bank maintains that interest cost is only one of the several factors that have dampened growth, and the increase in policy rate by the Reserve Bank alone cannot explain the investment slow down," RBI Governor D Subbarao said at the sixth annual Statistics Day Conference here.

Reuters

"I have asked our economic research department to do a detailed study on the time-series relationship between real interest rate and investment activity. We expect to put out that report in the public domain in the next couple of months," he added.

His comments come two weeks ahead of the quarterly monetary policy review which is due on July 31.

Subbarao's decision to keep interest rate unchanged at the policy review last month to contain inflation evoked criticism from industry and the government.

Ahead of the policy, industry has stepped up demand for interest rate cut to boost economic growth, which fell to nine-year low of 6.5 per cent for 2011-12.

The RBI Governor also raised issues concerning data gaps with regard to computation of inflation, national income and growth and underlined the need for rectifying them.

He also questioned the linkage between deceleration in industrial growth to 6.5 per cent in 2011-12 and the increase in policy rates by 3.75 per cent by RBI during March 2010 and October 2011. "... it is necessary to look behind the data and explore what lies underneath," he added.

PTI

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