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The Reserve Bank of India will assess if the declining trend in inflation is sustainable and accordingly take a decision on reducing interest rates.
Inflation based on Wholesale Price Index (WPI) declined to 6.87 per cent in July from 7.25 per cent in June. Still, it is much above the RBI’s 5-6 per cent comfort level.
However, with the easing of inflation and contracting industrial output, the industry is clamouring for reduction in interest rates to spur growth.
“Interest rates too fall when inflation drops... (RBI) will assess if the inflation fall is sustainable,” RBI Deputy Governor K.C. Chakrabarty told reporters after meeting Economic Affairs Secretary Arvind Mayaram here.
He said 5 per cent inflation is India’s comfort zone.
The Reserve Bank is scheduled to review its monetary policy on September 17.
In its monetary policy review last month, the RBI had kept the key interest rate (repo rate) unchanged at 8 per cent in view of high inflation.
After taking charge of the Finance Ministry this month, P. Chidambaram had said that high interest rates “inhibit the investor and are a burden on every class of borrowers’’.
He had said steps would be taken to bring down the interest rates.
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