Favourable environment for rate cut by RBI: Minister

New Delhi, Sep 18 (IANS) Union Minister of State for Finance Jayant Sinha on Friday said there was favourable environment for the Reserve Bank of India to cut interest rates ahead of its scheduled monetary policy review later this month.

“We are in a favourable environment now. Obviously, all of these have to be balanced and the RBI has to take its decisions,” he said on the sidelines of an event organised by the Public Affairs Forum of India here.

“Let us see how Governor (Raghuram) Rajan and the RBI process all of these factors and decide for themselves which course the monetary policy should take,” the minister said.

“With respect to India, we will continue to strengthen our real economy to ensure we follow robust policies, and as far as monetary policy is concerned, Governor Rajan and RBI will make appropriate decisions,” he added.

RBI Governor Raghuram Rajan has cut interest rate by 0.75 percent this year, to its current level of 7.25 percent in three tranches, two of which came unscheduled.

Commenting on US Federal Reserve’s decision not to raise interest rates, Sinha said: “I think the statements from (US Fed) chairman (Janet) Yellen indicated that she believes that it is going to take some time for these adjustments to happen, for asset prices and financial markets to deal with this new reality. And once that settles down, I think the Fed will have clearer sort of picture as to what they need to do.”

“On balance, while they see a pick-up in growth and other factors… the US economy is doing rather well… they also recognise the slowdown in China and the impact that has on asset prices. Financial markets around the world are required at this stage to take a more cautious stance,” he added.

Also on Friday, Rajan said the RBI would focus on keeping the interest rates low in the near-term as well as in the future.

“While the monetary policy will be accommodative, there is room to expand sustainable growth potential. By continuing with reforms that the government and regulators have announced, a sustainable growth potential can be achieved,” the RBI chief said while delivering the 4th C.K. Prahalad Memorial Lecture in Mumbai.

Asked about the US central bank’s decision, Rajan said this could be due to concerns about the American economy.

He said the US might be waiting for more information before deciding on a rate hike.

The RBI’s next monetary policy review is slated for September 29.

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