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Low interest rate to boost economy: FinMin

business Updated: Jun 07, 2012 19:40 IST

Pitching for cut in interest rates by the RBI in its forthcoming monetary review, the finance ministry today said low interest rate regime would push growth rate, which slipped to nine-year low of 6.5% in 2011-12.

"We see a possibility of growth picking up, if interest rates are reasonable," department of economic affairs secretary R Gopalan told reporters when asked about government's views on the interest rate scenario.

He said the Reserve Bank would take into account the inflationary situation and external factors while deciding on the interest rate stance in its policy review on June 18.

Whle the wholesale price (WPI) inflation in April was 7.23%, consumer price inflation based on retail prices was 10.36%.

Gopalan said the growth prospects of the economy are improving on the back of falling crude oil prices and gold imports. These two factors would help bring down current account deficit (CAD). Besides, savings rate in the January-March quarter has shown improvement.

After growing at 8.4% in two consecutive fiscals, the economic growth rate fell to 6.5% in 2011-12 mainly on the back of lower manufacturing sector output.

The government expects the economy to grow at 7.6% in the current fiscal.

Gopalan said the government has to address issues of fiscal deficit and CAD for economic growth.

"The government has to address deficit issues if it wants growth to take place. So fiscal deficit has to be kept at 5.1% in this fiscal," he added.

The fiscal deficit was 5.76% of the GDP in 2011-12, while the CAD is estimated at around 4%.

On Rupee, the secretary said, the nervousness in the eurozone and the crude oil prices had resulted in lowering of the value of the domestic currency.

The Rupee has declined over 20% since January. The Rupee was trading at around 55 against a dollar in today's market.

"I feel the external situation may not deteriorate and with the kind of steps we take, we are seeing that the Rupee will not remain at this level," he hoped.