Mumbai: High interest rates on automobile and house loans will continue as the Reserve Bank of India (RBI) yesterday decided to keep key interest rates unchanged in its fifth bi-monthly policy review of the current fiscal.
RBI Governor Raghuram Rajan said a change in the monetary policy at the current juncture will be premature and he will wait for the decrease in inflation to continue. However, he also mentioned the possibility of a rate cut early next year if the current downturn in inflation momentum continues.
He even predicted an interest rate reduction “outside the policy review cycle” if the data so permits.
“The policy is led by the data we are receiving and we need to be relatively sure that there is a moderation in inflation. We have had a couple of months (of low inflation) after 4-5 years of high inflation, we have to make sure that this is for real, especially because we do not want to flip flop,” Rajan said.
RBI had kept a target for bringing down inflation by six percent in 2015. Current data has shown that the country’s annual retail inflation eased to a record low of 5.52 percent in October. The wholesale inflation has also dipped. It was down to 1.77 percent from 2.38 percent.
At the same time, factory output, measured by the Index of Industrial Production (IIP), grew by just 2.5 percent during September pointing towards the persistent weakness in spurring manufacturing activity.
The central bank’s action is along expected lines as most analysts had predicted a status quo, considering the macro-economic situation and current data.
“Industry was hoping that, given the combination of persistent weak demand and sustained moderation in inflation, the Reserve Bank could have found merit in an accommodative stance on interest rate reduction,” said Sidharth Birla, president, Federation of Indian Chambers of Commerce and Industry (FICCI) .
IANS
