With consumer price inflation projected below 4% over the next one year, there is room for further lowering on interest rates, Reserve Bank of India’s governor Shaktikanta Das said on Thursday.
“Today, when we see that the price stability is maintained and inflation is much below 4 per cent and is expected to be so in the next 12 months horizon, there’s a room for rate cut especially when growth has slowed down,” Mr Das said at the Bloomberg India Economic Forum.
The central bank has reduced the interest rate which is the repo rate by 110 bps during February and August to boost economic growth which has been sluggish. The GDP growth for the first quarter of the current financial year dropped to 25 quarter low of 5%.
The repo rate is currently at 5.4% and there is an expectation that the central bank will further lower the interest rate in the net policy review scheduled in the first week of October.
By law, the central bank has a mandate to keep inflation at 4%, within a band of +/- 2%.
On the external sector, Mr Das said the outlook is one of cautious optimism, albeit with some downside risks accentuated at this juncture.
“Volatile international crude prices also continue to pose potential risks to the viability of the current account balance through trade and remittances channels,” he said.
