The government is expecting lower interest rates in the coming months as it looks at policy reversal by the Reserve Bank in the wake of moderation in inflation.

“... the fact that core inflation has moderated in the past three months and that in coming months we are looking at reversal in the policy rates should help in improving sentiments,” Finance Minister Pranab Mukherjee said while addressing the captains of industry in his post-Budget customary briefing.

RBI had raised the short-term lending (repo) rate 13 times between October 2010 and September 2011 in its bid to fight inflation. In all, the repo rate was increased by 3.75 percentage points.

The headline inflation remained high for most part of the year. It was only in December 2011 that it moderated to 8.3 per cent, and then to 6.6 per cent in January 2012, Mr. Mukherjee had said in the 2012-13 Budget speech.

Monthly food inflation declined from 20.2 per cent in February 2010, to 9.4 per cent in March 2011 and turned negative in January 2012, he had said.

“Though the February 2012 inflation figure has gone up marginally, I expect the headline inflation to moderate further in the next few months and remain stable thereafter,” he had said.

Meanwhile, Department of Financial Services Secretary D K Mittal said, “RBI has reduced CRR by 1.25 per cent releasing Rs 80,000 crore to banks. The money was not earning any interest from RBI.”

In terms of what RBI has done there is strong downward bias on interest rate, Mr. Mittal said.

Earlier this month, RBI reduced the cash reserve ratio (CRR) -- the portion of deposits banks require to keep with the central bank -- from 5.5 per cent to 4.75 per cent. With the reduction, the central bank pumped in Rs 48,000 crore in the economy.

Outlining higher GDP growth as one of key objectives, the Finance Minister said, the government would ensure that inflation pressure remain at the moderate level of 6-7 per cent in 2012-13.

“Inflationary pressures need to be at a moderate level in the next financial year,” Mr. Mukherjee said, adding, “I am not talking about a 3-4 per cent inflation level; 6 to 6.5 per cent will be an acceptable level.”

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