Decision to de-regulate savings rate was a good move: Rangarajan

25 Oct 2011 Evaluate

Reacting to the Reserve Bank of India’s (RBI’s) hike in its key policy rates, the Prime Minister's Economic Advisory Council (PMEAC) Chairman, C Rangarajan said that the RBI has taken difficult but the nevertheless a right decision. The RBI in its monetary policy review raised its short term lending and borrowing rates by 25 basis points. However, it left cash reserve ratio (6%), bank rate (6%) and statutory liquidity ratio (24%) unchanged.

On the further rate hike, PMEAC Chairman expects less possibility of rate hike by the RBI in December, as the RBI anticipates inflation to moderate by December. ‘The indication that the possibility of further rate hikes may not be there after November or December is a good indication. It should comfort some sections of the community,’ he said.

Rangarajan welcomed the RBI’s move of decontrolling the interest rate on savings rate, the decision to de-regulate the savings rate was a good move. ‘It will necessitate pass through of the hike. This time rate hike will be transmitted to the system,’ he added.

In the monetary policy review, the RBI also revised downward country’s growth forecast for the current financial year to 7.6% from 8%. Whereas, by the end of the current financial year, RBI expects headline inflation measured by the Wholesale Price Index (WPI) to moderate to 7% from the current level. However, Rangarajan expects economy to grow close to 8% mark.

Finance Minister Pranab Mukherjee said the RBI’s rate hike to have some impact on economic growth. India’s GDP growth for the April-June 2011 grew at the slowest in last six quarters; GDP growth stood at 7.7% in April-June 2011 compared 8.8% in the April-June 2010.