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Scope for further rate cut by RBI: Finance ministry official

In its last policy review in August, the RBI reduced the repo rate by 0.25% to 6%

Press Trust of India  |  New Delhi 

Photo: Shutterstock
Photo: Shutterstock

As the government scrambles for measures to boost the slowing economy, a top official today said there is scope for a rate cut at the next policy review as retail continues to be low.

The statement comes ahead of the Reserve Bank's bi-monthly decision to be announced on October 4.

"There is scope for monetary easing because of projections," the official said, adding that all the government analysis is made on the basis of remaining under 4% in the medium term.

In its last policy review in August, the reduced the repo rate by 0.25% to 6% in August, citing reduction in risks. The rate cut was the first in 10 months and brought policy rates to a near 7-year low.

However, retail rose to a five-month high of 3.36% in August due to costlier vegetables and fruits. The consumer price index (CPI) based was 2.36% in July.

Asserting that the slowdown in the manufacturing sector is due to various reasons, the official said the response has to be from across the board, including interest rate, the exchange rate for boosting the manufacturing sector.

"Once the effect of demonetisation and substantially reverses, we should expect those sectors picking up. But those sectors have been affected by the appreciation of the currency. So it's a combination of these ones of the factors plus an appreciation of the currency," the official said.

The has been intervening heavily to prevent appreciation of the rupee for the last three months and the real competitiveness of the domestic currency has improved a little bit but still not enough to offset the loss in the previous six months, the official added.

"One other good is that volume of world exports has increased significantly. So manufacturing will pick up after the impact of demonetisation and wearing off," he said.

With regard to the Goods and Services Tax (GST), the official said problems with regard to returns filing is coming down.

There is a serious concern over behaviour as people tend to file tax returns towards the last date, the official said, adding that collections so far seem to be all right.

First Published: Sat, September 23 2017. 17:57 IST