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

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Planning Commission Deputy Chairman Montek Singh Ahluwalia today said there is not much of a case for the Reserve Bank to lower the interest rates.

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

He said: "Many people think that 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 (a) bring inflation under control and secondly to the extent to which the international capital mobility leads to volatility...."

"...Whether he should have kept 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," he added.

Reserve Bank Governor Raghuram Rajan today surprised the markets and raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for corporates.

Stating that he sympathises with the industry, Ahluwalia said: "Industry wants lower rates; there is no doubt that 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....," he added.

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