Falling inflation will raise scope for further rate cut, says FM

New Delhi: Accepting Reserve Bank’s stance on policy rate for what it is, Finance Minister P Chidambaram today expressed hope that declining inflation would increase the scope for rate cut by the central bank.

“Let’s accept what has been done today and let us see what the future holds”, he said while commenting on the RBI’s monetary policy for the current financial year. “RBI reduced policy rates by 25 basis points. It also announced rather liberal OMO (Open Market Operations). If the inflation trend down further…that will decide scope for further policy action”, Chidambaram said.

[caption id=“attachment_749379” align=“alignleft” width=“380”] The central bank in its monetary policy for 2013-14 marginally lowered the short-term lending rate by 0.25%. AFP[/caption]

The central bank in its monetary policy for 2013-14 marginally lowered the short-term lending rate by 0.25 per cent and kept the Cash Reserve Ratio (CRR), the portion of deposit that banks are required to keep with the RBI, unchanged. It has pegged the growth rate for current fiscal at 5.7 per cent, much below the Finance Ministry’s projection of 6.1 to 6.7 per cent. On the growth prospects, RBI said,“economic activity during the current year is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year”. Not happy with RBI’s projection, Planning Commission Deputy Chairman Montek Singh Ahluwalia had described its outlook as “pessimistic”.

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“Reserve Bank is clearly more pessimistic than the government is. I think that the government forecast as of now is feasible. Critically what matters is, how effective we are in restoring the momentum of investment in the large projects”, the Plan panel deputy chief said.

PTI