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'RBI should not lower repo, CRR rates'

Last updated on: July 16, 2009 16:31 IST

Former Reserve Bank Deputy Governor, S S Tarapore, on Monday said that the apex bank should not cut its repo and cash reserve ratio (CRR) in its July monetary policy and force banks to lower their interest rates.

While political economy considerations may prevent the RBI from giving an unequivocal signal of monetary policy tightening, it certainly should not reduce the present repo rate of 4.75 per cent, Tarapore said at the Skoch summit.

Like interest rates, the time has come to no longer talk about possible reduction in the 5 per cent CRR but give a clear signal that the CRR may need to be raised in future, Tarapore said.

The Reserve Bank is scheduled to announce the quarterly review of its annual monetary policy on July 28.

Tarapore said the apex bank should refrain from forcing banks to lower their lending and deposit rates as further reduction in rates would discourage depositors.  

Besides, the Reserve Bank needs to focus on the multiple indicators of inflation rather than merely focusing on the wholesale price-based inflation (WPI), Tarapore said.

It would be prudent for the RBI to concentrate on multiple indicators of inflation. It is absurd to focus attention only on the point-to-point wholesale price index, which presently reflects a negative rate of one per cent, Tarapore said.

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