'No staggered interest rate hike'

Rakesh Mohan

Rakesh Mohan takes over as economic affairs secretary today.

Outgoing Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan ruled out the possibility of a series of interest rate hikes over the next few months on the lines of the US Federal Reserve.

In an interview with Business Standard on Saturday, Mohan was asked whether the RBI would go for small rate hikes at regular intervals. He said: "The monetary policy statement was very clear. Had that (the possibility of a staggered increase) been the case, the policy would have stated it."

Mohan is taking over as economic affairs secretary, finance ministry, on Monday.

He refused to comment on the interest rate outlook but dropped broad hints that the rates might not shoot up. He said: "Internationally, many central banks have increased their policy rates but some have not. As of now, indications are that rates are not going downward. In our case, the rates did not go down as fast as they did globally," he said, and added that the hike in rates was not a serious threat to Indian banks.

"The system is resilient and banks are in the process of learning to live with environmental changes where inflation and rates can go up and down. In a rising interest scenario, they have a greater incentive to lend and the interest income will compensate for the treasury losses," Mohan said.

He also said the economy was not overheated and was growing at a healthy pace.

"Neither the manufacturing growth of 8 per cent nor the industrial growth of 7.4 per cent in the first five months of 2004-05 has taken place in the recent past. The last time it happened was in 1995-96. At the same time, we will have to remember that for 15 years, from the late 1970s to the mid-1990s, we had average industrial growth of 7-8 per cent. Incidentally, this was also the average in the 1950s and 1960s. So, this is nothing unusual. The economy is not overheated," Mohan said.

Mohan refused to be drawn into the controversy over foreign banks' acquisition of private banks in India but said there was no difference of opinion between the RBI and the finance ministry.

"The finance minister wants more competition among banks and that all banks should get the same treatment. We also want these," he said.