Not much of a case for RBI to lower interest rates: Montek

Planning Commission Deputy Chairman Montek Singh Ahluwalia on Tuesday said there was not much of a case for the Reserve Bank of India (RBI) to lower interest rates.

"The governor has made it clear this was a very small adjustment in the short-term rate;... People think by lowering the short-term rates he could have given a boost, I don't think lowering of short-term rates leads to a boost," Ahluwalia told reporters on the sidelines of the CII Partnership Summit here.

He said, "Many people think he could have lowered the interest rate for the short end... internationally, he is right to give the signal that we are going to do whatever is necessary. That is, first, bring inflation under control and second, to the extent to which international capital mobility leads to volatility... Whether he should have kept it where it is or done what he has done is a matter of judgment, I don't think there was much of a case for lowering the interest rate."

RBI Governor Raghuram Rajan on Tuesday surprised the markets and raised the key policy rate by 0.25 per cent to eight per cent to curb inflation, a move that could translate into higher equated monthly installments (EMIs) and push up the cost of borrowing for companies.

Stating he sympathises with the industry, Ahluwalia said: "Industry wants lower rates; there is no doubt we want the economy to develop rapidly, we need the lower rates - the rates offered by banks to be low but the point is that banks can only lower their rates if they can lower their deposit rates. Whether the RBI governor lowers the short-term rate or not, it doesn't affect the cost of deposit for the bank."

On the governor's expectations that economic growth would be below five per cent in the current financial year, Ahluwalia said: "It is premature in my view to come to any conclusion that GDP growth rate for 2013-14 will be below five per cent, at the moment it is below five per cent...It will be around five per cent, maybe a little below."

"I think that there is a general agreement in the world that in the next year 2014-15 the economy is poised to grow up, how much is very unclear at this point; but I share the view if the governor's statement is understood be that next year the GDP ( gross domestic product) growth rate will be 0.5 per cent higher, that I think is reasonable," he added.

On inflation, he said,"All of us have said the inflation is coming down but it is not as low as we would want, I would hope that inflation will come down further. WPI inflation has come down, CPI normally adjusts to the WPI after couple of months....We have consistently said that about 6 per cent is comfortable, but that is the planning commission view."