Interest rates most effective way to control inflation: Chidambaram

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New Delhi, Mar 4 : Finance minister P Chidambaram on Tuesday said there is scope for deposit rates and interest rates to drop. “Interest rate is the most effective way to contain inflation especially when there are such huge capital inflows,” the minister said.

According to latest figures, inflation has been hovering at over 4% . Huge capital inflows also continue to pose a challenge to monetary management, as Chidambaram said in the Budget.

The minister’s remarks come soon after his meeting with public sector banks after which most of them had gone in for rate cuts. A cut in the interest rate will boost consumption further by making loans cheaper.

He however pointed out that interest rates are in the domain of the Reserve Bank of India (RBI), which keeps a track on them. The main mandate of the RBI is to maintain price stability and to ensure that growth is not affected, Chidambaram said while addressing a post Budget meeting with the Confederation of Indian Industries (CII). This is the view of the government and it has communicated it to the RBI privately, he said.

To another question, the minister said he has already impressed upon banks that they must provide more consumer loans to individuals to buy durables and non-durables. He has been pushing banks to lend more to the retail sector and hope they will do so adding that some banks are already responding. Making a case for dis-investment the minister also said there is scope for stake sales in state-run firms as pointed out in the Budget. While 44 such companies have already been listed and more can be done, he said.