The Hindu Business Line : Hardening of interest rates inevitable: PM's council

The Prime Minister's Economic Advisory Council, chaired by Dr C. Rangarajan, has said that some hardening of interest rates was "inevitable" to restrain inflation but has also focused on the need to make available investment capital at "reasonable rates of interest".

In its report to the Prime Minister, Dr Manmohan Singh, on the economic outlook for 2006-07, the Council has drawn the attention of the Government to the need for reduction in fiscal deficit, particularly revenue deficit, to release resources for private investment.

Recently, there has been a debate in the monetary circles on the need to raise interest rates to curb liquidity and control inflation while the Finance Ministry wanted caution to be exercised by the banking sector before raising lending rates so as to encourage the growth momentum.

On inflation, the Council has said that it expects the Wholesale Price Index-based inflation by the year-end to be contained around 5.5 per cent, which is the outer band for the Reserve Bank's forecast on inflation. "In view of the increase in prices across several sectors, containing money supply growth has to be an integral part of inflation management," the Council has said. The Advisory Council has projected a near 8 per cent rate of growth for the economy in 2006-07.

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