Rajan Unlikely to Lower Interest Rates on Food Inflation Worries

Reserve Bank of India (RBI) governor Raghuram Rajan is unlikely to lower interest rates in the credit policy review in April if Finance Minister  P Chidamabaram’s interim Budget speech 2014-15 on Monday is considered.

Published: 18th February 2014 06:00 AM  |   Last Updated: 18th February 2014 01:16 AM   |  A+A-

Reserve Bank of India (RBI) governor Raghuram Rajan is unlikely to lower interest rates in the credit policy review in April if Finance Minister  P Chidamabaram’s interim Budget speech 2014-15 on Monday is considered.

Economists say that there is still a risk of retail inflation going up on account of excessive unplanned spending that may force the central bank to continue its tight rein on inflation. Even the minister in his speech said that there is still some distance to go when it comes to inflation.

“Last year, when I read the Budget speech, WPI headline inflation stood at 7.3 per cent and core inflation at 4.2 per cent.

Through the year, inflation saw its ups and downs. At the end of January 2014, WPI inflation was 5.05 per cent and core inflation 3.0 per cent.

Both the government and RBI have acted in tandem. While our efforts have not been in vain, there is still some distance to go. Food inflation is still the main worry, although it has declined sharply from a high of 13.6 per cent to 6.2 percent,” said Chidamabaram.

Commenting on the possibility of a rate hike by the central bank in the monetary policy, Bank of Baroda’s chief economist Roopa Rege said, “Fiscal consolidation has been achieved by severely cutting planned expenditure which doesn’t augur well for real sector and banks’ asset despite good agricultural performance in FY 2014. The implication is that the RBI will closely watch inflation and may raise interest rates later in the year.”

State Bank of India’s chief economic advisor Saumyakanti Ghosh said, “The government seems to be banking on a higher growth rate through a revival in the manufacturing sector that may come about through cutting excise duties. I don’t see an immediate rate hike but in may come about in 2014-15, if the central bank targets CPI.”

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