A day after announcing annual credit policy, RBI Governor D Subbarao on Wednesday said that any hike in interest rates in future will depend on inflation.
“The probability of hiking rates is not zero but it is small, just as the probability of easing interest rates further is also not zero but modest,” Dr. Subbarao said during a conference call with analysts.
After a gap of three years, the Reserve Bank on Tuesday lowered interest rates by 0.50 per cent to arrest declining growth.
The economic growth slowed to a 3-year low of 6.9 per cent in 2011-12 on account of factors like high commodity prices, slowdown in domestic demand and RBI’s tight money policy.
The RBI had hiked policy rates 13 times since March 2010 to control inflation which had remained close to the double digit mark for most part of 2011.
The overall inflation for March eased to 6.89 per cent, lower than RBI’s projection of 7 per cent.
While releasing the annual monetary policy, Dr. Subbarao had said that a reduction in the interest rate was based on an assessment of growth having slowed and a moderation in core inflation.
“Upside risks to inflation persist. These considerations inherently limit the space for further reduction in policy rates,” Dr. Subbarao had said.
The RBI expects the GDP growth for 2012-13 fiscal to be 7.3 per cent and overall inflation by March 2013 to come down to 6.5 per cent.