RBI rules out fresh rate cut

The Reserve Bank of India (RBI), on Monday, indicated that it may not cut interest rates to boost growth in its month-end monetary policy review as inflation is still high.
“We are way above the threshold on inflation. It, however, does not imply any action to be taken by the RBI,” Governor D Subbarao said at a function here.

“WPI inflation at 7.25 per cent and CPI at double digits, certainly we are above the threshold,” he said. The statement come two weeks ahead of RBI’s quarterly monetary policy announcement on July 31. Inflation, as measured by the Wholesale Price Index (WPI), was 7.25 per cent in June much above the comfort level of 5-6 per cent. At the same time, Consumer Price Index for May was 10.36 per cent.

With economic growth hitting nine-year low of 6.5 per cent in 2011-12, the industry has been demanding rate cut by RBI to promote growth.

In its bid to rein in inflation, the Reserve Bank hiked key policy rates 13 times, totalling 350 basis points, between March 2010 and October 2011. Since January this year, RBI has resorted to injecting liquidity into the financial system by reducing cash reserve ratio for banks. Besides, it has called for fiscal steps by the government to combat inflation.

However,  RBI in its monetary policy review last month had refrained from reducing rate in view of high inflation and deteriorating global climate. RBI has projected inflation to be around 6.5 per cent by March 2013, cautioning it will remain sticky and that there was a need to arrest the decline in economic growth.

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