The RBI’s status quo on key policy rates was in line with expectations and it should wait until the budget to lower rates, former Chairman of the Prime Ministers’ Economic Advisory Council C. Rangarajan said on Tuesday.
“The policy has been very much on expected lines. It is prudent and wise to wait a little longer before taking any decision on lowering the interest rate.
“We do not know very much about what the monsoon is going to be. The new Budget is yet to be unveiled and therefore, the decision to lower the interest rate will have to come after some of these events are over with,” Dr. Rangarajan said in an interview to a news channel.
The Reserve Bank of India, in its Second Bi-Monthly Monetary Policy Statement for 2014-15 on Tuesday, kept the repo rate unchanged at 8 per cent. It also reduced the statutory liquidity ratio (SLR) for banks by 0.5 per cent to 22.5 per cent, a move that will unlock about Rs 40,000 crore of funds.
Dr. Rangarajan said any downward revision in interest rates would have to wait until the inflation rate shows definite signs of decline.
“We have seen some decline in the wholesale price inflation but retail inflation continues to remain at a high level and it has not also shown signs of decline,” he said.
Retail inflation as measured by the consumer price index accelerated to a three-month high of 8.59 per cent in April, pushed up by a sharp spike in food prices.
On the reduction in the SLR ratio, he said it was a signal from the point of view of long-term reforms.
“But the most important point is that as the capital inflows come in there is going to be a monetary expansion which may be quite high and therefore the availability of credit both for the government and the private sector is not going to be a constraining factor,” he said.