RBI: A 'good' budget will help in disinflation, allow rate cut

 If the disinflationary process continues at a faster-than-anticipated pace, RBI can go in for a cut in interest rates, Governor Raghuram Rajan on Wednesday said.

"If disinflation happens in much faster rate than anticipated and we believe we can finish this period with the appropriate amount of final disinflation, we certainly will be in position to cut the interest rate at that time," Rajan told researchers and analyst at the post-policy conference call. Explaining, he said a "good" budget focusing on the already-on fiscal consolidation by reducing subsidies and improving investments would be helpful on inflationary front.

"A good budget, action on agriculture support prices, reduction in subsidies and perhaps targeting more investment would be helpful on the inflationary front,” he said. The Governor noted "we are in early days in the disinflationary process, we have to see how it works out, but we are hopeful that it would play out well." Rajan said he would like monetary policy to be stable and not react to every incoming data.

"We would want to have stable monetary policy. To the extent that we find the substantial amount of room builds up before the interim target (of CPI) is reached, the question would then be should we cut tremendously now but then run the risk of not reaching the final target, and the general intent would be a smoother process.