Interest rates may harden a bit, says Rangarajan

Interest rates may harden a bit, says Rangarajan

"The interest rates may harden a little bit, not very much, towards the end of the fiscal," he told reporters on the sidelines of a conference on the global economic meltdown. The credit offtake has shown some signs of recovery, Rangarajan said, adding: "As the economy picks up there will be greater demand. I am sure the banking system has enough liquidity with it to lend more."

The former governor of the Reserve Bank of India (RBI), however, does not foresee the apex bank immediately withdrawing its accommodative policy. "We need to have definite signs of recovery. Only after the economy recovers we can think in terms of withdrawing. It should not be premature. As the signs of recovery become very definite, then they can think of it," he said.

Asked what RBI should do in the current scenario, Rangarajan said it should watch the situation and ensure that there was adequate liquidity in the system so that more credit could be made available.

At the same time the central bank has a responsibility to see that the inflationary pressures are kept under control, he said. The capital inflows are also improving, he said. "Even in the current year, the inflows are much higher than what they were last year. Both FDI and FII (foreign institutional investment) inflows will be larger this year. The total addition this year will be of the order of $20 billion."

Rangarajan feels there is no need for another stimulus package. "The package already given is very good. The fiscal measures of increased expenditure will go on till March next year. We will have to review the situation after that."

On disinvestment, he said the government would have to take into account concerns of different people and decide the appropriate time. "The appropriate time is when the stock markets are doing well. They also have to ensure that they carry everybody with them."