Key rates may rise further, subject to inflation: Kaushik Basu

Key rates may rise further, subject to inflation: Kaushik Basu

New Delhi: Finance ministry’s chief economic adviser Kaushik Basu on Thursday said the Reserve Bank of India (RBI) may go for further hike in its key lending and borrowing rates within 6-8 months, depending on inflation and growth figures.

“I can’t rule that out, but at the same time this is going to (be) watched, growth figure will be watched, inflation figure will be watched and a decision will be taken," Basu told reporters when asked whether there would be another hike by RBI is next 6-8 months.

RBI on Thursday raised short term lending (repo) rate by 0.25 percentage points to 6% and borrowing (reverse repo) rate by 0.50 percentage points to 6% to tame high inflation.

While food inflation crossed 15% during the week ended 4 September, as per data released by the government on Thursday, overall inflation was 8.51% in August.

“I expect inflation to be distinctly lower by (the) end of this fiscal. RBI’s action will not damage growth. It is a signal to banks to further increase deposit rates."

In its first ever mid-quarterly review, RBI said bank deposits have seen a deceleration, since deposit rates, adjusted for inflation, are in the negative.

It said real deposit rates, the interest that depositors get after adjusting for inflation, need to move in the direction that encourage deposits.

The central bank said 40 banks have raised deposit rates since July, when it had raised policy rates to check inflation.