Mumbai: Reserve Bank of India (RBI) governor Raghuram Rajan on Friday said the central bank is committed to bringing down high inflation, suggesting that an interest rate cut is not in the offing in the near term, even though growth remains sluggish in Asia’s third largest economy.
Rajan was speaking at the Institute for Indian Economic Studies in Tokyo.
The central bank is set to review its monetary policy on Tuesday and most economists expect Rajan to hold rates given the continuing high inflation in the economy. A cut will further spur demand and could add to inflation and inflationary expectations.
Retail inflation in April stood at 8.59% as compared with 8.31% in the previous month, even as wholesale price inflation eased to 5.2% in April from 5.7% in March.
Since he took over in September, Rajan, former chief economist at the International Monetary Fund (IMF), has hiked the key lending rate, repo, by 75 basis points (bps) to fight inflation.
One basis point is one-hundredth of a percentage point.
Addressing the need to revive growth in the Indian economy, Rajan said on Friday the big task for the new Bhartiya Janata Party (BJP)-led government in the short term is to revive growth. He added that “large expectations” have built up for India under the new government, according to Bloomberg.
The government will release gross domestic product (GDP) growth data for the January-March quarter and for fiscal year 2013-14 on Friday. Bloomberg estimates that India’s economy grew by 4.7% in the final quarter of the year. In the December-quarter, GDP grew by 4.7% compared with 4.8% in the September quarter.
Rajan said fiscal consolidation in India is possible. The bond markets have been expecting the new government to try and narrow the fiscal deficit and hence pare the level of government borrowings.
On Friday, the benchmark 10-year bond yield fell to 8.6%, the lowest in four months. The 10-year bond yield has fallen 23 basis points since 16 May when the new government was voted into power with a majority.
Bond yields and bond prices move inversely.