RBI may consider reversing its recent hike in short-term interest rates after it succeeds in stabilising the rupee against the US dollar, Prime Minister Manmohan Singh said on Friday.
“Once these short term pressures have been contained, as I expect they will be, the Reserve Bank can even consider reversing these pressures,” Mr. Singh said at a function here.
Earlier this week, RBI had raised short-term interest rates to quell rupee volatility, as the domestic currency depreciated to an all-time high of 61.21 against the greenback.
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The central bank has also hiked the lending rates for banks, limiting borrowings at Rs 75,000 crore and sucking up Rs 12,000 crore through bond sales, to make the domestic currency dearer.
>The Marginal Standing Facility (MSF) rate was increased to 10.25 per cent from current 8.25 per cent. Accordingly, the Bank Rate was also adjusted to 10.25 per cent with immediate effect.
Thus, RBI raised lending rates to commercial banks by 2 per cent to 10.25 per cent making loans costlier.
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The measures came after high level meetings between the Prime Minister and the Finance Minister followed by discussions with RBI Governor D Subbarao who was called as the rupee lost 33 paise to reach 59.89 after touching over-61-levels last week.
“These steps are not meant to signal an increase in the long term interest rates. They are designed to contain speculative pressure on the currency,” he said.
The RBI has done its bit to stabilise market expectations, he said, adding it had initially injected dollars into the market. This helped to some extent.