RBI Governor Urjit Patel today told the Monetary Policy Committee (MPC) that there is room for banks to further cut interest rate while sounding a note of caution on inflation front in the coming months. The six-member MPC headed by Patel, had opted for status quo on the benchmark policy rate (repo rate) on April 6.
As per the MPC minutes released by the RBI today, Patel said that for efficient transmission, it is important that interest rates on small savings are not out of line with interest rates on other comparable instruments in the financial system. The weighted average lending rate of banks has come down only by 0.85-90 per cent as against a 1.75 per cent cut in policy rates since January 2015. Lower lending rates encourage economic activities, but they also have the potential to fuel inflationary expectations.
The RBI’s mandate is to contain inflation without hurting economic growth. Referring to the price situation, Patel said that notwithstanding likely favourable base-effects in the next few months, the outlook for inflation calls for close vigilance. He said, it was required with a view to ensure that inflation remains closer to the target of 4 percent. Another member and RBI Deputy Governor Viral Acharya said that on the growth front, the re-monetisation is continuing apace and many sectors of the economy are recovering steadily after the transient slowdown.