Fair
13°CSun :Mostly Clear. High: 22 Low: 12

RBI’s status quo influenced by external factors: Rangarajan

RBI's status quo influenced by external factors: Rangarajan

New Delhi: Reserve Bank’s decision to maintain a status quo on interest rates has been influenced by external sector considerations, specially widening current account deficit, Chairman of Prime Minister’s Economic Advisory Council, C Rangarajan, said.

“Yes, I think it is a difficult choice. The RBI has taken a cautious stand…The decision has been largely influenced by the external sector consideration. The current account deficit (CAD) is high and more recently the rupee has been under pressure. This appears to have been a major factor influencing the RBI to pass this stand,” Rangarajan said post-RBI policy announcement.

The Reserve Bank in its first mid-quarter policy review today kept the key interest rates unchanged because of elevated food inflation, rupee depreciation and uncertainty over foreign fund inflows.

He said going forward the price situation seems to be continuing and there have been some administered prices that needs revision.

“But even the depreciation of the rupee will have some impact on the price situation,” he added.

Rupee had hit an all-time low of 58.96 per US dollar last week on concerns the US Federal Reserve might pull back its quantitative easing programme in a phased manner.

Rangarajan said the developments on the external situation in the coming six weeks will determine RBI’s next policy review on July 30.

“If the capital flows are resumed and if the rupee is not under the kind of pressure it has been in the last few weeks, the RBI would have an increased space to operate. I personally think that the external sector considerations will again be the predominant one even by the end of July,” he said.

The CAD, which is the difference between the outflow and inflow of foreign currency, is estimated to be around 5 percent of the GDP in 2012-13 fiscal. The CAD had touched a record high of 6.7 percent in the October-December quarter.

Chief Economist Bank of Baroda Rupa Rege Nitsure said the RBI may ease the policy in second half of 2013-14 conditional upon normalcy in monsoon and stability in currency.

Supporting the policy move, Siddharth Shankar, Advisor, KASSA said the RBI has done the right thing by not making changes in rates at this point of time. He said the bank may like to watch the quantitative easing action by the US.

“Should the rupee remain volatile and Fed starts to pull out of QE3, we would see rupee depreciating further thereby putting more pressure on inflation and thus RBI may not cut rates (even) in the next meeting,” Shankar said.

Meanwhile, Rangarajan said food inflation still remains high but with monsoon progressing, the expectations are that food prices might come down.

“…But at the same time, as I have said earlier, the major factor influencing the RBI in its decision will be what happens on the external front,” Rangarajan added.

 

Top Stories

creature-3d-poster

Movie Review : Stay far from this Creature!

September-12-2014
Cast : Bipasha Basu, Imran Abbas Naqvi Director : Vikram Bhatt Plot : Ahana (Bipasha Basu) has shifted base from Mumbai to
Wipro--621x414

Wipro ties up with Adobe for incorporated showcasing, business results

September-12-2014
Bangalore : Wipro has attached up with Adobe to give incorporated showcasing, trade, dissection and client experience results. These results help organizations
Gold-Bars-Granules

Gold loses the value on weak global cues

September-12-2014
NEW DELHI: Amidst a feeble pattern abroad, gold costs fell 0.33 for every penny to Rs 27,132 for every 10 gram in
Nitin_ Gadkari_PTI

Nitin Gadkari announces that Govt to Roll Out Rs 2 lakh Crore Infra Projects This Year

September-12-2014
NEW DELHI: After dispatching expressway ventures worth Rs 1.5 lakh crore that were stuck because of different administrative obstructions, the administration is
sonia-rahul-gandhi-to-end-internal-differences-in-aicc-post-abroad-return

Sonia, Rahul Gandhi to end inside contrasts in AICC on return

September-12-2014
NEW DELHI: Congress president Sonia Gandhi and her representative Rahul Gandhi will take activities to end the interior contrasts in the All-India
2014_9$img05_sep_2014_pti9_5_2014_000034b-ll

Rajnath says that relations with Modi are heartfelt

September-12-2014
New Delhi :  Brushing aside reports of contrasts with Prime Minister Narendra Modi, Union Home Minister Rajnath Singh today said the relationship