RBI has little room for further rate cuts: Gokarn | business | Hindustan Times
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RBI has little room for further rate cuts: Gokarn

business Updated: May 08, 2012 23:09 IST
HT Correspondent

If you have been putting off a planned purchase of a house or a car, waiting for interest rates to fall further, think again.

The Reserve Bank of India (RBI) on Tuesday hinted that there was limited room for further rate cuts amid strong signs of inflation climbing back to uncomfortable levels.

"We started that process (reducing interest rates) in April," Subir Gokarn, RBI deputy governor, said in Hyderabad on the sidelines of an event organised by industry chamber Ficci. "But if you look at our inflation projections in relation to what we consider as long-term or medium objectives, there are inflation pressures. That in a sense, limits the room that we have to reduce rates."

In the continuing tug-of-war between rising prices and sliding growth, the RBI last month slashed the repo rate - its main lending rate - for the first time in nearly three years, triggering hopes of further cuts were in store.

RBI had slashed the repo rate - or the rate at which banks borrow from the central bank - by 0.50 percentage points to 8%. A lower repo brings down the borrowing costs for banks.

India's retail inflation galloped towards double-digits - it was 9.5% in March - amid fears that rain-induced supply constraints and a possible increase in fuel prices will knock up prices of food and other items.

Unseasonal rains have affected vegetable crops across the plains of north India, and can affect harvesting and potentially choke food grains supplies.

An increase in retail prices of petrol and diesel are also widely expected after the Parliament's budget session ends this month - a move that will raise the prices of goods because of higher cost of ferrying them across locations.

Higher inflation may stall any further moves by RBI to cut interest rates.

"As we said in policy guidance, while the growth and inflation balance is now shifting favourably, that (though) growth is slowing down, inflation is also coming down along with it. That allows us (RBI) some room to reduce policy rates," Gokarn said on Tuesday.