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RBI may cut rates if situation warrants

The Reserve Bank of India Deputy Governor Y V Reddy on Friday said there was room for the central bank to cut interest rates if the situation demanded it.

In an interview with Reuters Television, he said the current thrust of the central bank's monetary policy was to ensure sufficient finance for industry.

"In the current context, the emphasis is on provision of adequate credit and revival of investment demand," Reddy said when asked if the central bank was considering easing interest rates in the near future.

"Any move on interest rates will take into account this stance of the monetary policy," he said.

"In addition if the circumstances warrant, as indicated in the policy, there is some room for flexibility, but the question is, when do the circumstances warrant?," Reddy said.

Indian money markets have been speculating the RBI will soon announce a cut in one of its two key monetary instruments - the bank rate or the cash reserve ratio.

Their bullishness was fuelled by the RBI's monetary policy for 2001/02 (April-March), unveiled last week, which indicated a preference for a softer monetary stance, followed by the passage of the federal Budget on Wednesday.

The policy, announced against a backdrop of falling global rates and slow domestic growth, kept the benchmark bank rate unchanged at seven per cent.

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