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Why RBI's decision to retain old rates is right

Last updated on: July 31, 2012 16:12 IST

Why RBI's decision to retain old rates is right

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Describing the RBI decision of not cutting key interest rates to check price rise as the 'right move', outgoing Chief Economic Advisor Kaushik Basu on Tuesday the expressed hope that inflation would come down to below 7 per cent in September.

"My expectation is that inflation in the month of September will go below 7 per cent," he said while commenting on the RBI decision to keep interest rates unchanged for the second time in a row.

The central bank, however, lowered the Statutory Liquidity Ratio -- amount of deposits banks park in government bonds -- by 1 per cent to 23 per cent.

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Image: Kaushik Basu.
Photographs: B Mathur/Reuters

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"RBI has said pause.

"RBI has made a right move and the lowering of SLR is a very important small move (will) give right indication," Basu said.

On economic growth, he said that the world is going through difficult times and it is imminent that GDP would slow down in the first two quarters of the fiscal.

"In the first two quarters (April-June, July-September), growth will remain below 6 per cent.

"Hopefully there will be a pick up after that," Basu said, adding that the government needs to bring in fundamental changes and move forward to achieve high growth momentum.

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Image: A labourer pulls down a handcart after loading a bundle of processed cotton at a processing unit.
Photographs: Amit Dave/Reuters
Tags: RBI , Basu , SLR , GDP

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The Wholesale Price Index-based inflation, at 7.25 per cent in June, is much above the RBI's comfort level of 5 per cent.

Besides, retail inflation remains at the elevated level of 10.02 per cent.

Economic growth has slowed to nine-year low of 6.5 per cent in the 2011-12 fiscal, and 5.3 per cent in the January-March quarter.

RBI lowered the growth forecast for the current fiscal to 6.5 per cent from 7.3 per cent earlier.

In his last media interaction as CEA in the Ministry of Finance, Basu said that there should be some easing of interest rates in the medium to long term.

Basu is retiring on Tuesday.


Photographs: Reuters

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