Interest rates will come down when inflation softens: RBI

Stating that rising prices should have been controlled faster, RBI Deputy Governor K C Chakrabarty on Saturday said interest rate will be reduced as and when inflation comes down.

“As and when inflation rate comes down, interest rates will come down....” he said on the sidelines of an event here.

“Our policy rate was 3.5 per cent in 2008. Then inflation went up to 10 per cent, we should have controlled inflation faster,” he said, while delivering a lecture on ‘Indian Economy:
Today and Tomorrow’ organised by the Gujarat Chamber of Commerce and Industry (GCCI).
He said inflation in manufacturing and services sector can be reduced by lowering the cost of production services with the use of technology. Inflation in July moderated to 6.87 per cent, helped by decline in vegetable prices, even as food inflation stayed in double digits and manufactured items remained under price pressure.

Though the inflation has moderated in July, from 7.25 per cent in June, it remains much above the 5-6 per cent comfort level of RBI. On the high current account deficit (CAD), he said it is mainly because of high oil and gold imports.

In its balance of payment statement in June, the Reserve Bank in July had said that India’s CAD widened to the highest ever level to 4.5 per cent of GDP at $21.7 billion in January-March period of 2011-12 due to higher imports of oil and gold. Chakrabarty also said a growth of at least 9-10 per cent shall be required over the next 20 years.