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RBI may not hike rates: PM's panel

October 14, 2009 18:09 IST

Reserve Bank of IndiaThe Reserve Bank of India is not likely to hike interest rates in its monetary policy review on October 27 even as inflation is expected to rise to 6 per cent this fiscal-end from 0.7 per cent at present, the Prime Minister's Economic Panel said on Wednesday.

"I don't think the RBI will revise interest rates in the policy review. . . As far as the monetary policy is concerned, it has followed an accommodative policy, and unless inflation pressures are very strong, there may not be any change in the stance," Prime Minister's Economic Advisory Council chairman C Rangarajan told reporters.

He said the RBI might wait to make any change in the policy rates.

The former RBI governor further said prices will begin to rise from now on, mainly because of the low base of last year and rising food prices.

"By the end of the year, you will get an inflation rate even on wholesale price index of about 6 per cent," he added.

Inflation has been on the rise on the back of rising food prices and stood at 0.70 per cent for the week ending September 26.

Rangarajan said there is always a seasonal decline in prices in November and December, adding, 'one might want to wait and see whether the seasonal decline occurs or not, and take action after the behaviour of prices.'

Rangarajan also said that RBI could end its open-market operations -- under which it manages liquidity in the market against government securities.

As the Indian economy started getting impacted by the global financial crisis, RBI cut its short-term lending rate (repo) by 4.25 percentage points to 4.75 per cent and borrowing (reverse repo) by 2.75 percentage points to 3.25 per cent.

Besides, it cut the requirement for banks to keep a portion of their deposits in the central bank by four percentage points to 5 per cent to unleash liquidity in the economy.

Rangarajan also said the government's fiscal deficit estimate of 6.8 per cent in the current fiscal and 6.2 in 2008-09 is not sustainable.

"I certainly believe that the fiscal deficit of the order that we have seen last year and current year is not something that can be sustained so some efforts should be made to bring it down," he said.

To fund the fiscal deficit, the government has announced borrowing programme to the tune of Rs 4 lakh crore (Rs 4 trillion) in 2009-10.

"I do think private demand will pick up next year and the borrowing programme of this order could run into serious problem and could push up interest rate," he added.

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