RBI may cut interest rate in Jan: Rangarajan

PMEAC chairman C Rangarajan on Tuesday said the central bank may cut interest rate only in January as inflation is unlikely to decline soon.

The Prime Minister's Economic Advisory Council (PMEAC) chairman said the central bank has taken a cautious stand in its monetary policy as inflation continues to remain high.

"Perhaps for a change in the policy rate, the RBI is waiting for a period or an opportune movement when there could be sustained decreases in interest rate.

"I think they would start doing it only in January, unless there is some strong tendency for inflation to decline in the next four-five weeks. That doesn't appear to be likely at the moment," he said.

RBI decision to maintain status quo on policy rates disappointed industry and markets, with BSE benchmark Sensex shedding 205 points to close at over five-week low of 18,430.85 on selling in banks and other rate-sensitive stocks.

Hinting of a rate cut in the January-March quarter, the RBI said baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13. The third quarter review of the monetary policy is scheduled on January 29.

The tight monetary stance of RBI to tame inflation has affected growth and both industry and markets were expecting that the central bank would cut key interest rate.

However, the RBI left the key interest rate (repo rate) unchanged at 8 per cent.

Rangarajan, however, said that if the inflationary situation improves and there are any definite signs of decline, "perhaps the RBI may be wiling to do it even six weeks earlier than the January end".

He further said that a cut in the CRR should be seen as an easing of the monetary policy as it "puts more liquidity in the hands of the banks and also improves their profitability."

Referring to the fiscal deficit, he said government would make all efforts to bring it down to 5.3 per cent of GDP in the current fiscal.

He also said that economic growth in the current fiscal is likely to be in the range of 6 per cent as against the earlier projection of 6.5 per cent by the PMEAC.

The RBI expects the GDP growth rate at 5.8 per cent in 2012-13 financial year.