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Interest rates will come down when inflation softens: RBI

Updated: September 2, 2012, 3:21 AM IST
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Interest rates will come down when inflation softens: RBI
Inflation in July moderated to 6.87 per cent, helped by decline in vegetable prices.

Ahmedabad: Stating that rising prices should have been controlled faster, RBI Deputy Governor KC Chakrabarty on Saturday said interest rate will be reduced as and when inflation comes down.

"As and when inflation rate comes down, interest rates will come down...." he said on the sidelines of an event here. "Our policy rate was 3.5 per cent in 2008. Then inflation went up to 10 per cent, we should have controlled inflation faster," he said while delivering a lecture on 'Indian Economy: Today and Tomorrow' organised by the Gujarat Chamber of Commerce and Industry (GCCI).

He said inflation in manufacturing and services sector can be reduced by lowering the cost of production services with the use of technology.

Inflation in July moderated to 6.87 per cent, helped by decline in vegetable prices, even as food inflation stayed in double digits and manufactured items remained under price pressure.

Though the inflation has moderated in July, from 7.25 per cent in June, it remains much above the 5-6 per cent comfort level of the Reserve Bank.

On the high current account deficit (CAD), he said it is mainly because of high oil and gold imports. In a lighter vein he said, "Ahmedabad is notorious for gold... Do not use gold for the next five years ... I think the problem shall be solved."

"People should start travelling on bicycle and save fuel," he said.

In its balance of payment statement in June, the Reserve Bank in July had said that India's CAD widened to the highest ever level to 4.5 per cent of GDP at USD 21.7 billion in January-March period of 2011-12 due to higher imports of oil
and gold.

Chakrabarty also said a growth of at least 9-10 per cent shall be required over the next 20 years. "We need to grow at least by 9-10 per cent for next 20 years if the society has to survive and this burden has to be shouldered by you all," he said.

On the global economic situation, he said, "This is a crisis, absolutely no doubt, it comes once in a lifetime... I can say we shall not be alive when this type of crisis comes next...."

Drawing attention to countries like Greece which are in midst of sovereign debt crisis, he said they have to work hard and as well as sacrifice. "The envoy of Portugal told me his salary has gone down by 20 per cent year-on-year, but how many of you had to do this here," he wondered.

Across the globe food prices are going to go up and they may not be able solve the true inflation for a pretty long time, he said.

To a particular query, Chakrabarty said the issue on payments from Iran was a political issue. "You should contact the Prime Minister or Finance Ministry on this count," he said.

First Published: September 2, 2012, 3:21 AM IST
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