There is a case for RBI to cut rates: Rajan

* Central bank to unveil annual policy on May 3

Written by ENS Economic Bureau | New Delhi | Published: April 27, 2013 4:18:10 am

Ahead of the Reserve Bank of India’s annual monetary policy,the finance ministry’s chief economic adviser Raghuram Rajan on Friday pitched for a cut in interest rates on the grounds that core inflation has come down and growth needs to be revived.

“The Rabi crop is likely to be good one. That will help bring inflation down. So as inflation comes down,there is case for RBI to cut interest rate. I think,we have a case for stronger growth,” Rajan said at an event.

The RBI is scheduled to announce its annual policy on May 3. In its last policy review in March,the central bank had cut short-term lending rate by 0.25 per cent to 7.5 per cent. However,it left the cash reserve ratio unchanged at 4 per cent on expectations that government will start spending more.

Since then,data revealed that the wholesale price index based inflation had moderated to a three year low of 5.96 per cent in the month of March,as against the RBI’s projection of 6.8 per cent.

The economy’s growth engines stalled to a decade low of 5.5 per cent with third quarter growth falling to 4.5 per cent.

While the Budget has projected a growth rate between 6.1 to 6.7 per cent in 2013-14,the finance ministry has earlier stressed that lower interest rates are essential for a revival in economic activities.

The Prime Minister’s Economic Advisory Council chairman C Rangarajan had last week also said that moderating inflation would give the RBI more legroom to lower rates.

In a reply to a query whether retrospective amendments create negative sentiment,Rajan said: “In general,the government should avoid doing retrospective amendments,which Parthasarathi Shome committee report has suggested.”

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