New Delhi: There is scope to reduce key interest rates but the Reserve Bank of India (RBI) may not announce a cut at its policy review next week, a top policy adviser to Prime Minister Manmohan Singh said on Friday.
The central bank reviews monetary policy on Tuesday and a Reuters poll showed it might hold rates steady after recent aggressive reductions but a sizeable minority of analysts bet on yet another cut.
“There might be a scope for reducing both the repo and the reverse repo. Unless they reduce the reverse repo it will be difficult. The reverse repo acts as a problem as banks park funds with the RBI,” Suresh Tendulkar, chairman of the Prime Minister’s Economic Advisory Council told Reuters on phone.
“So I think they will have to reduce both.”
Asked whether the RBI will cut rates in its policy on 27 January, Tendulkar said: “Well, I think given their previous behaviour RBI has always been cautious. Consequently, I will not be surprised if they don’t cut.”
“But certainly they will give some indicative perceptions on Tuesday.”
The repo rate, the key short-term lending of the RBI, stands at 5.5% after being slashed by 350 basis points since mid-October.
The reverse repo rate is at which the central borrows short-term funds from banks. It stands at 4%.
Tendulkar, who will release an update of the economy later in the day, said bank lending has to speed up and lending rates must come down.
“The banks are not lending and that is the bigger problem,” he said. “Rates are not coming down as fast as one would have expected. Lending rates have to come down to boost both consumption and investment.”