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Rangarajan sees inflation restraining RBI from rate cut

10 Jul 2012 Evaluate

Watering down the widespread expectation of another rate cut by the Reserve Bank of India (RBI) in its upcoming monetary policy review later this month, Prime Minister’s Economic Advisory Council chief C Rangarajan has said that the Reserve Bank will find it difficult to cut interest rates in absence of softening of inflation, particularly that of non-food manufacturing.

The PMEAC chief said that 'I believe if the inflation rate, particularly non-food manufacturing, shows decline then there will be scope for RBI to adopt easier stance.' RBI is scheduled to announce its second quarter review of monetary policy on July 31. In its previous mid-quarter policy review it had preferred to play down the growth concerns choosing to maintain status quo. Meanwhile, the top bankers have urged the central bank to ease monetary policy to boost liquidity and revive economic growth, arguing that manufacturing inflation, a key measure of core inflationary pressures, has eased considerably.

Rangarajan said that Indian condition is different from other countries and if other countries are having slow growth rate there inflation too is low, he also said that the scope for stimulus is limited as fiscal deficit is high and we have to make an effort to contain fiscal deficit at the budgeted level.

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