RBI expects inflation rate to turn soft

RBI Governor Bimal Jalan on Thursday ruled out the possibility of a change in Repo rate, but hoped that inflation would turn soft from the second quarter of the current fiscal.

"We maintain the same position that Repo rate is flexible, but there is no proposal right now to change it from five per cent," Jalan told reporters after a meeting of the central board of RBI in Kolkata.

Repo rate is the rate at which RBI borrows overnight funds from banks. The current rate at which the apex bank borrows is five per cent. There was apprehension in the market that considering the existing liquidity in the market, rates might be changed.

The meeting of the Central Board discussed, among other things, the recently announced Monetary and Credit Policy for 2003-04.

Asked to comment on whether the prevailing inflation rate of over six per cent had peaked or would decline Jalan said, "We should see some relief on this account in the second quarter, but obviously it is not possible to be very definitive, we have to watch the situation."

The RBI governor said "we are hoping that with oil prices now having come down quite substantially since the Iraq days and hopefully if the monsoons turns out to be good or 96 per cent ... what is being now predicted, we should

see a softening of edible oil prices also."

Asked whether the credit policy was a clear indication that the soft interest rate regime might be over in the country, Jalan said "we have not given any clear indication. What we have said is that we would like to maintain this soft rate, not necessarily softer rate."

"Since interest rates etc. have come down quite significantly during the last two to three years for various reasons, which I have explained in the policy, scope for further sharp reduction is limited," he said.

Jalan said that a point has been made in the policy to make sure that risk management was done because the interest rate environment was changing and there was a substantial risk on the prices of government securities.

The governor reiterated that credit offtake had improved in the last few months and industry was witnessing some upturn, which was reflected in the latest IIP.

He said apart from electricity which had not been so good, there was a pickup in the industry and he hoped that the trend would continue.

"If the industry growth continues and monsoon is good,we can look forward to a better period," Jalan said, adding, "We expect the rate of growth to be closer to six per cent if the monsoon is 96 per cent."