Interest rate cut will depend on inflation, says Chakrabarty

Nov 16 2012, 03:17 IST
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SummaryRBI deputy governor KC Chakrabarty on Thursday indicated that any cut in key policy rates will depend upon price situation.

RBI deputy governor KC Chakrabarty on Thursday indicated that any cut in key policy rates will depend upon price situation.

Speaking to reporters after attending a meeting that the finance minister P Chidambaram had with public sector bank chiefs, he said, “We are looking for 4-5% inflation which is our comfort level.” In October, wholesale price index-based inflation was 7.45%. Last month, RBI had raised the March-end inflation projection to 7.5% from the earlier 7%. According to RBI, inflation could shoot up to over 8% in near-term. RBI hinted at easing rates in the fourth quarter of the current financial year. All eyes are now on RBI's third quarter review of monetary policy slated for January 29, 2013.

RBI had, even in half-yearly monetary policy review last month, not reduced key interest rates citing high inflation, but cut cash reserve ratio by 0.25% to 4.25% to infuse R17,500 crore worth liquidity into the system.

The repo rate (rate at which RBI lends to banks) stayed put at 8%, while the reverse repo (rate at which RBI borrows from banks) remained unchaged at 7%.

On the non performing assets in banks, Chakrabarty said, “NPA is high, the situation is disturbing but it is not alarming. We are asking banks to manage NPA portfolio better and there is enough scope for that.”

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