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RBI may not cut interest rates, hints Govt

Government on Saturday indicates that the Reserve Bank may not go for interest rates cut to boost the industrial production because of high inflation.

business Updated: Mar 15, 2008 16:52 IST

Government on Saturday indicated that the Reserve Bank may not go for interest rates cut to boost the industrial production because of high inflation.

"As long as there is a threat of inflation, you have to trust the RBI to use policy interest rates in order to contain inflation and dampen inflationary expectations," Finance Minister P Chidambaram said at India Today Conclave in response to a query whether there will be interest rate cuts to give a fillip to the sagging industrial growth.

Chidambaram, however, said determination of policy interest rates is under the domain of the RBI.

The very purpose of fixing policy interest rates is to contain inflation.

He attributed high inflation to rising prices of food and commodity prices in the world, saying that India is not entirely insulated from the global trends.

Citing examples, he said the global crude oil prices surged to USD 110 a barrel yesterday from 37 dollars when the UPA government came to power.

Similarly, global prices of palm oil that India imports rose to USD 1,270 per metric tonne from USD 471 per MT.

The inflation rate rose to over nine-month high of 5.11 per cent for the week ended March 1.

The industrial growth as represented by the Index of Industrial Production (IIP) plunged to 10-month low of 5.3 per cent in January.

The Finance Minister said: "We have recognised that there is a slowdown, thanks to the US impending recession. We have applied tax book economic approach to boost consumer demand by putting more money in the hands of tax payers, cutting excise in customs duties and enlarging public expenditure."