If inflation's peaked so have interest rates: Chakrabarty

Just about a fortnight before the first quarterly review of the monetary policy statement by the Reserve Bank of India (RBI), deputy governor K C Chakrabarty has made a statement which reflects the central bank’s state of mind on interest rate scenario.

When asked whether interest rate had peaked, on the sidelines of finance minister Pranab Mukherjee’s meeting with the public sector bank chiefs in the capital yesterday, Chakrabarty initially feigned ignorance. “How would I know?... If inflation has peaked, interest rates, too, would. And if it hasn't, then interest rate hasn't peaked,” he said.

RBI is slated to announce the first quarterly review of the monetary policy on July 26. This will be done in a meeting with the chief executives of major banks.

In its mid-quarterly review in June, the RBI raised key policy rates by 25 basis points (bps) in its effort to tame inflation. It had raised the short-term lending (repo) rate by 25 bps to 7.50 per cent and the short-term borrowing (reverse repo) rate was moved up by a similar margin to 6.5 per cent. (A basis point is one hundredth of a percentage point — 0.01 per cent)

“Going forward, notwithstanding both signs of moderation in commodity prices and some deceleration in growth, domestic inflation risks remain high. Against this backdrop, the monetary policy stance remains firmly anti-inflationary. Recognising that in the current circumstances, some short-run deceleration in growth may be unavoidable to bring inflation under control,” the RBI had said in its June review.

Inflation rose to 9.06 per cent in May after dropping to 8.66 per cent in April. Prior to this, it had been over 9 per cent for the previous four months. The data of June will be released on Tuesday and will factor the impact of fuel price rise. The second round of impact will be evident later.