New Delhi, May 27: While maintaining that the Reserve Bank of India will continue with its soft interest rate bias, governor Bimal Jalan today ruled out any immediate reduction in the repo rate — the rate at which the central bank borrows overnight funds.
The speculation of a cut in the repo rate was fuelled by the central bank’s decision to reduce two other benchmark interest rates — the bank rate and the cash reserve ratio (CRR) — when it unveiled the slack season credit policy on April 29. While the RBI reduced the bank rate by 25 basis points to 6 per cent, it cut the CRR by an identical margin to 4.5 per cent.
This apart, rising forex inflows, sliding inflation coupled with the rupee’s surge against the dollar led to widespread expectation that the RBI is going to reduce the repo rate in the near future.
The RBI had last cut the repo rate in March, a day after the Union budget, in order to spur an industrial recovery. In fact, during the last financial year RBI had reduced the repo rate thrice.
On the appreciation of the rupee against the dollar, Jalan said there is nothing abnormal about it. Since January, the rupee has gained 2.3 per cent against the US greenback.
Sticking to his earlier projection, the RBI governor said the domestic economy, which is the world’s twelfth largest, will grow at the rate of 6 per cent. “The (6 per cent) projection is based on 96 per cent monsoon. As of now it remains so. Let’s see what happens,” he said.
A good monsoon is vital for the economy as agriculture contributes around 25 per cent to the gross domestic product (GDP) with two thirds of the billion-plus population dependent on agriculture for their livelihood.
The RBI projection of a higher growth rate comes in the backdrop of a dismal 4.4 per cent GDP growth during 2002-03 estimated by the Central Statistical Organisation mainly due to a 3.1 per cent fall in farm produce in the last fiscal. Jalan also expressed confidence that the inflation rate will fall gradually. The rate which is based on the wholesale price index rate slid for the fourth consecutive week to 5.9 per cent for the week-ended May 10.