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RBI not for interest rate cut

New Delhi, June 8 () : RBI and Finance Ministry seem to be at loggerheads over the issue of interest rate cut. RBI feels that further cut is not needed but Finance Ministry feels that cut in interest rates would push up growth.

R Gopalan, Department of Economic Affairs Secretary felt that there is a possibility of growth picking up, if interest rates are further reduced. He was informing reporters about government’s views on the interest rate. On June 18, RBI’s mid-quarter monetary review is to come and economists and Finance Ministry are looking for a cut of 25 points.

Reserve Bank of India Deputy Governor K.C. Chakrabarty felt that the present rates are reasonable and was not hampering economic growth. Finance Ministry that is facing the flak from Congress for the economic growth which slipped to nine-year low of 6.5 per cent in 2011-12, is all out to stop the slide with RBI help.

Finance Ministry wants RBI to look into the inflation and external factors before they decide. Wholesale price  inflation (WPI) in April stood at 7.23 per cent, consumer price inflation which is based on retail prices shot up to 10.36 per cent. Crude oil price is going down and less gold imports have more or less brought down current account deficit (CAD).

For two consecutive financial years, economy was growing at 8.4 per cent but it fell to 6.5 per cent in 2011-12 mainly due to the lower manufacturing sector output.

According to Finance Ministry, this year the growth would be 7.3 %. January-March quarter has shown improvement in savings rate. The government wants the  fiscal deficit to be kept at 5.1 per cent in this fiscal year.The fiscal deficit was 5.76 per cent of the GDP in 2011-12. CAD should be around 4 per cent.

Another worry was the rupee losing to the dollar. Since January the rupee has declined over 20 per cent. Currently the rupee is trading at 55 for a dollar. The Ministry hopes that external situation may not deteriorate and with the RBI taking steps the rupee will not remain at this level.

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