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RBI may cut interest rates further as inflation falls, says Arvind Subramanian

"The way I view is that RBI has a mandate to bring down inflation and keep it low..." Chief Economic Advisor Arvind Subramanian said.

Barun Jha   Davos     Last Updated: January 26, 2015  | 14:32 IST
Chief Economic Advisor Arvind Subramanian
(Photo: Reuters)

Lauding Reserve Bank of India's (RBI) role in helping bring down inflation, Chief Economic Advisor Arvind Subramanian said the central bank may further ease key policy rates as improvement on the price front has widened space for monetary easing.

"The way I view is that RBI has a mandate to bring down inflation and keep it low and given the inflation has been coming down, that opened up the space for monetary policy easing and RBI has begun that," said Subramanian on the sidelines of the World Economic Forum (WEF) Annual Meeting at Davos.

"The RBI's own statement says that this is not just a change in rate, but a shift in its monetary policy stance provided inflation remains low and there could be more easing," Subramanian told PTI in an interview at the WEF summit that ended this weekend.

A number of business leaders and bankers, including ICICI Bank's Chanda Kochhar and Kotak Group's Uday Kotak, also said at the WEF that the country's apex bank may look at easing rates further as inflation appears to be under control.

"My estimate is that RBI may ease rates by 75-100 basis points more in the calendar year 2015. That is the total rate cut I see coming ahead," said Kotak.

Meanwhile, the chief economic adviser also said the government is committed to making sure that the taxation is not an extra burden for foreign investments of all kinds.

On ease of doing business, Subramanian said, "There are also issues like land laws, labour laws and reforms have been happening on those fronts.

We will have to wait for the World Bank to measure how these efforts have helped in terms of ranking. Besides, the real measure will be seen in terms of actual investments that would flow in."

On January 15, the central bank had cut the policy rate by 25 basis points a few weeks ahead of its next monetary policy meeting scheduled to be held on February 3.

RBI Governor Raghuram Rajan lowered the benchmark repo rate to 7.75 per cent from 8 per cent, the first reduction since May 2013.

The RBI rate cut follows decline in inflation as well as the commitment of the government to trim the fiscal deficit target to 4.1 per cent of the GDP in the current 2014-15 financial year.

(PTI)

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