RBI hints at rate cut

The Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan today said it was possible to bring down interest rates in the medium term provided there is greater price stability. Mohan reiterated that the central bank was constantly striving to bring down inflation, which continues to be its prime area of concern.

"Our effort is really to administer a system so that there is price stability. With greater price stability, it is possible to have lower interest rates in the medium-term," Mohan said in his address at a seminar on treasury and risk management.

The RBI raised the repo rate "� the rate at which it lends to banks "� by 25 basis points to 7.25 per cent in October in a signal to banks to slow down the burgeoning credit growth and focus on funding loan demand from deposits.

Mohan said the effort of the central bank was to bring down inflation "over a period of time." The central bank is targeting inflation of 5.0-5.5 per cent by March-end while the government is aiming for inflation below 4 per cent in the medium-term.

"Given that international inflation rate is around 2-3 per cent and ours is around 4-5 per cent, we constantly strive to bring it down though we have no fixed target," he said. On foreign exchange market, Mohan said the central bank's aim was to manage volatility without a fixed exchange rate target.

"We are keeping a close vigil on the market. We do intervene in the forex market as and when necessary. We do not want excessive volatility in the forex market," Mohan said.

The central bank normally intervenes in the forex market through state-run banks, selling or buying dollars depending on the rupee-dollar movement.

Mohan said the RBI was keeping a close watch on external debt.

As and when the headroom on external loans improves, the central bank will raise the ceiling for companies to borrow more from global markets.