'More room for rate cuts may open up if monsoon, oil risks are low'

Room for more rate cuts in India may open up if monsoon rains are better than expected or if the government takes steps to prevent food prices from rising and if global oil prices remain low, said Reserve Bank of India Governor Raghuram Rajan on Tuesday.

"Going forward, room may absolutely open up if monsoon is better than expected or government action can mitigate any potential rise in food prices and if energy prices stay contained.

"Clearly, it is possible, more room may open up and we will take full advantage of it as we see more room opening up," Rajan said on space to cut rates more.

The RBI chief was speaking to researchers at an analyst call after the central bank lowered the repo rate by 25 basis points to 7.25 per cent, but struck a cautious note on inflation on worries over sub-normal monsoon projection.

The government on Tuesday cut this year's monsoon forecast to 88 percent of the long-term average, prompted by an El Nino weather pattern and raising fears of the first drought in six years.

"It is important to note that interest rates aren't the only instrument at work here. There are number of other things, including government policy, bank policy, all of which help to create growth," Rajan added.

Image: Raghuram Rajan; Photograph: Reuters