'The CRR cut signals that the cycle is about to turn'

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: has changed its policy stance.

What are your views on interest rates? Have they peaked and can they be expected to head down hereafter?
You have to take into account the demand and supply factors. The fact that there is a liquidity constraint means that there is some mismatch at least somewhere along the yield curve. But if companies have scaled down their investment plans, and if consumers are not borrowing significantly to fund their purchases, then the demand side will soften. The combination of these two factors is leading to, I think, either a plateauing or a decline of interest rates. Despite inflation being high, the global turbulence tilts the balance in favour of a neutral monetary stance. Interest rates are unlikely to go up. They will soften but perhaps not very significantly.

Have inflationary concerns abated? Can we expect inflation to decline steadily hereafter even though it is at about 12 per cent still?
It is almost certain that inflation will decline pretty substantially March 2009 onwards unless there is a reversal in oil prices. From the global macroeconomic scenario, it appears unlikely that oil prices will harden. They may come down further but they will not harden in this situation. Given that the base effect will turn favourable in March 2009, we should expect the inflation number to come down very sharply then. From now till March, it will remain fairly high.

Why has the rupee declined about 21 per cent this year against the dollar?
The rupee has declined because of the same factors that have led to the liquidity squeeze. If money is leaving the country for a variety of reasons, then the currency comes under pressure. Besides, there is significant demand for dollars to buy oil which is not being offset by oil bonds. The balance of payment deficit has also widened. All these factors have caused the decline.