RBI may not lower interest rates

Jaipur: Ahead of second quarter review of monetary policy on October 25, RBI indicated that it may not lower the key interest rates as inflation is still high.

"...We need to bring inflation down in order to bring interest rates down," RBI Governor D Subbarao said here.

He further said that the central bank is conscious of the need to bring down interest rates to boost economy, but it might take time.

RBI is for a low interest-rate regime but that will take time, he said.

[caption id="attachment_106335" align="alignleft" width="380" caption="RBI Governor D Subbarao before the RBI's credit policy review meeting in Mumbai on Tuesday. Santosh Hirlekar/PTI"][/caption]

The Governor expressed concern over the rising inflation, but said it could be controlled by the end of this year.

The Reserve Bank of India (RBI) is scheduled to hold its quarterly review of credit policy on October 25. However, it is unlikely that the RBI will pause its rate hike strategy on account of the slowdown in industrial output growth.

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The RBI has already hiked rates 12 times since March, 2010, to control inflation, which stood at 9.8 per cent in August.

During August, the Index of Industrial Production (IIP) declined to 4.1 per cent against 4.5 per cent recorded in the same month a year ago.

Factory output stood at 5.6 per cent in the April-August period, as against 8.7 per cent in the same period last year, according to official data released today.

Addressing members of Rajasthan Chamber of Commerce, Subbarao said the economic growth will remain between 7.5 per cent and 8 per cent.

Earlier during the day at special State Level Bankers' Committee (SLBC) meeting of Rajasthan, the Governor said financial inclusion needs to be meaningful.

Banks in Rajasthan will ensure that all 3,883 identified villages with total population of more than 2,000 are meaningfully covered in the first phase of financial inclusion plan by March 2012, RBI said in a statement.

It said banks will draw up specific strategies to improve the credit-deposit ratio in three districts of Rajasthan, namely, Dungarpur, Rajsamand and Sirohi which have low CD ratio.

State government of Rajasthan will release its share of Rs 39 crore towards recapitalisation of five regional rural banks in Rajasthan, it said.

The Governor and other senior officials of RBI are in Jaipur to attend a meeting of the Reserve Bank's Central Board of Directors being held in Jaipur tomorrow.

PTI