Economy Nov 23, 2012
New Delhi: Finance Minister P Chidambaram today expressed hope that the Reserve Bank would be able to reduce key interest rate with the further easing of inflation.
"As inflation eases further, there will be an opportunity for monetary policy to take measures to mitigate growth risks," he said in a written reply to the Lok Sabha. Chidambaram said that high inflationary pressures had necessitated the adoption of tight monetary policy by the RBI.
Besides other factors, tightening of monetary policy by the RBI to control inflation has resulted in slowing down of investment and growth.
While RBI kept interest rate (repo rate) unchanged in its last policy review, it reduced the Cash Reserve Ratio or CRR (percentage of deposits banks keep with RBI) by 0.25 percent.
The RBI is scheduled to announce its mid quarter review of the monetary policy on December 18. With some moderation in inflation, there has been relaxation in the monetary policy stance.
CRR has been reduced to 4.25 percent in phased manner and repo rate has been cut by 50 basis points.
Inflation for September, as measured by the wholesale price index (WPI) was 7.81 percent. RBI expects the March-end inflation at 7.5 percent. Chidambaram also said the government has taken several measures to revive growth in the economy.
India's growth rate slowed to 5.5 percent in the first quarter of the current fiscal, from 8 percent in the year-ago period. Industry has largely blamed the high interest rate regime, among other things, for the slowdown as it raised borrowing costs and curbed consumer spending.
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