Inflation to determine interest rates: Rangarajan

Inflation to determine interest rates: Rangarajan

Mumbai: C. Rangarajan, chairman, economic advisory council to the Prime Minister does not expect the Reserve Bank of India to increase interest rates any further if inflation continues to fall at the current pace.

“We have data of about two weeks and it vindicates that food inflation has come down and if this persists then perhaps no further rate actions may be needed," Rangarajan told reporters in Mumbai on Saturday.

“Inflation is coming down and we think it will come down to 6.5% by December-end," he added.

India’s food inflation rate based on the wholesale price index decelerated to 8.60% year-on-year in the week ended 20 November from 10.15% in the previous week data from the ministry of commerce and industry showed on Thursday.

This is the first time that food inflation is into single digits since May 2009.

Rangarajan also said increase in government spending in the last quarter of the fiscal will ensure that the liquidity situation will improve.

“RBI will ensure take action as may be necessary to ensure that there is adequate liquidity in the system. Also, in the second half of the year, particularly in the last quarter, public spending increases and as a consequence liquidity situation will ease," he said.

Banks have created a record in borrowing through the repo window in the week ended 27 November, borrowing more than 1 trillion in each of the days between Monday to Friday, including a record 1.51 trillion on Tuesday.