Inflation must come down more: RBI

Inflation must come down more: RBI
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First Published: Thu, Feb 14 2008. 11 48 PM IST
Updated: Thu, Feb 14 2008. 11 48 PM IST
New Delhi: Reserve Bank of India (RBI) deputy governor Rakesh Mohan has said the inflation rate needs to be brought down further after the measure accelerated unexpectedly to the highest in more than five months.
Slower inflation will help keep interest rates low, Mohan said on Thursday. The rate is still high by global standards, the central bank official said. Inflation accelerated to 4.11% in the week ended 26 January from a year earlier, the government said on 8 February.
“The RBI’s objective has been to provide appropriate liquidity and keep inflation low,” Mohan said. The country can sustain high growth in the coming years by maintaining high savings and investments.
RBI governor Yaga Venugopal Reddy refrained from reducing interest rates at the bank’s last monetary policy meeting on 29 January on concern that rising oil and food prices will stoke inflation.
While India is the most stable nation in terms of macro economic policy, it faces a challenge in managing high credit growth, Mohan said.
The recent cuts in lending rates by banks are in line with the RBI policy, Mohan said. The economic and financial environment hasn’t changed since the bank announced its monetary policy at the end of January, he said.
State Bank of India, the nation’s biggest by assets, cut its benchmark prime lending rate by 25 basis points to 12.5% on 11 February. A basis point is 0.01 percentage point.
Housing Development Finance Corp., the mortgage lender partly owned by Citigroup Inc., and banks such as Canara Bank and Allahabad Bank have also cut rates.
Finance minister Palaniappan Chidambaram had last month asked banks to lower rates to revive slowing loan growth and increase investment in Asia’s third biggest economy.
Chidambaram had last week asked state-run banks to boost loans for the purchase of homes and consumer goods which, he said, were key to economic growth.
Loan growth has eased in past months as consumers bought fewer automobiles and washing machines because of high interest rates and delayed home purchases as prices rose. Lending grew 22.6% in the 12 months through 25 January, less than the 29.8% expansion a year earlier, Bloomberg data shows. The central bank has raised rates nine times since October 2004 to make loans more expensive.
The government on 7 February had said India’s economy may expand 8.7% in the 12 months to 31 March, the weakest pace in three years. Growth was 9.6% in the last financial year.
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First Published: Thu, Feb 14 2008. 11 48 PM IST