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: these developments increase the risk that enough may not be spent on infrastructure.
Can a high fiscal deficit become a factor that prevents interest rates from coming down?
Yes, if everything else remains the same, the more that the government borrows, less is the amount of capital available for the private sector to borrow. So interest rates would go up. But it’s a dynamic situation in which many things are changing simultaneously. Therefore, it is difficult to make a categorical statement that a high fiscal deficit will result in high interest rates.
By when do you expect a cut in the repo rate?
There is a reasonable prospect of seeing it happen by January 2009. But I would be certain that it would happen by April 2009. In January the end of the inflationary episode will be in sight. If the RBI cuts rates then, it could be seen as acting a little ahead of the curve. By April the inflation rate would have visibly declined. So, that would be a more traditional kind of response. ...
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