Kuala Lumpur: India’s central bank has room to adjust interest rates further to spur the economy and as inflation eases, governor D. Subbarao said on Sunday.
The economy will have a more difficult year in the 12 months ending March 2010, compared with an expected growth of 7% in the current period, Subbarao told reporters in Kuala Lumpur.
The central bank left borrowing costs unchanged at its 27 January meeting after lowering them to a record in early January to shield the economy from a global slump.
Tough times ahead: Central bank governor D. Subbarao. Abhijit Bhatlekar / Mint
The Reserve Bank of India left the reverse repurchase rate at 4% and the repurchase rate at 5.5% after it unexpectedly cut borrowing costs on 2 January to coincide with Prime Minister Manmohan Singh’s second fiscal stimulus package since December.
“We do have room for interest rate adjustments and we will make all adjustments as deemed appropriate,” Subbarao said at an event organized by the Malaysian central bank. He didn’t elaborate.
Gains in wholesale prices are easing, and may slow to 3% by the end of March, he said. Inflation rate fell to an 11-month low of 5.07% in the week ended 24 January. Consumer price gains are also expected to slow.
Subbarao last month lowered the forecast for India’s growth for the year to 31 March to 7% from between 7.5% and 8%, adding that the estimate has a downward bias.
A recovery in the South Asian economy will be dependent on a resumption of growth globally, he said. Even if exports are a relatively small percentage of the gross domestic product, recovery in India will, in a large measure, be linked to a recovery around the world, he said.