Experts welcome move, say it reflects cautious stance

 Describing the RBI decision of not cutting key interest rates to check price rise as the “right move”, outgoing Chief Economic Advisor Kaushik Basu expressed hope that inflation would come down to below 7 per cent in September.

“My expectation is that inflation in the month of September will go below 7 per cent,” he said commenting on the RBI decision to keep interest rates unchanged for the second time in a row. “RBI has said pause. RBI has made a right move and the lowering of SLR is a very important small move (will) give right indication,” Basu said. “RBI is having to tread this difficult path (growth slowdown).

We do know that keeping a tight control over liquidity makes growth difficult, but on the other hand they have to worry about inflation. My own recommendation would be that we should in the medium to long term begin to ease up on the interest rates but at this point of time what was done to wait and watch was correct.”

The Planning Commission said RBI has taken a cautious stance due to sticky inflation in its quarterly review of monetary policy by keeping the key rates unchanged. “As far as looking ahead is concerned, the RBI has taken a slightly cautious stance because of its concerns that inflation is sticky. I have no difficulty with that,” Deputy Chairman Montek Singh Ahluwalia said.

“They (RBI) are looking (at a situation) that if the monsoon does not improve, then there may be some pressure on that (inflation) front. There is no harm (in) being little cautious on this,” he added. Prime Minister’s economic advisor C Rangarajan said interest rate cut would have given a wrong signal. “The efforts were best to contain inflation. RBI has struck an appropriate balance to control inflation and to provide stimulus to growth,”  Rangarajan said.