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RBI: Don’t Have a Lot of Room to Cut Rates

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New Delhi ministers and economists alike are hoping for further monetary easing from the Reserve Bank of India (RBI) but in an exclusive interview with CNBC, central bank governor Raghuram Rajan hinted that any imminent rate cuts were unlikely.

A decline in food prices—long a thorn in the side of policymakers in Asia’s third-largest economy—has helped cool inflation, bolstering expectations that India’s central bank still has room to lower rates further from their current 6.75 percent.

But the central bank’s policy scope may not be as ample as previously thought, according to Rajan.

“My sense is that the underlying inflation is between 5-5.5 percent right now, that’s the sort of run rate, so we probably will get back to that by the end of the year,” he told CNBC’s Martin Soong.

“So, that doesn’t give us a lot of room below the 6 percent [repo rate]. Our sense is that over the course of the next year, because of disinflationary forces and the weak state of the global economy, it will come close to 5 which is what we’re targeting for March of 2017.”

After averaging around 10 percent in 2013, consumer price inflation (CPI) stood at 4.41 percent in September, above August’s 3.7 percent reading but still well within the central bank’s targeted range. The RBI wishes to contain consumer price inflation (CPI) within 6 percent by January.

CNBC

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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