RBI favours deregulation of interest rates on savings accounts

Reserve Bank Governor D Subbarao today said the central bank is in favour of deregulating interest rates on savings accounts as part of financial sector reforms.

"Deregulation of interest rates (including savings rates) is an important way forward for reforms. The base rate system that would come in to affect from July 1 is also an important reform method," he said here.

The concerns expressed by banks on the issue should be debated, he said.

Currently, the savings rate is fixed at 3.5 per cent and is being calculated on daily basis from April 1.
    
Yesterday, RBI Deputy Governor K C Chakrabarty had said, "We are in favour of deregulating all interest rates including savings rate."
    
"We have initiated a debate in the last policy... The deduction is very clear, clear in favour of deregulating all interest rates, including savings banks. But the decision will be taken, when to do that, after having adequate debate on the issue," Chakrabarty had said.
    
However, bankers felt that any such move would lead to wide variation in the market.
    
Chakrabarty had said, "This is a highly competitive market. Prices do not vary much. But what will be the rate, what customers will get, will depend on market conditions."
    
On inflation, Subbarao said the RBI will review the inflation targets at its next policy meeting on July 27.
    
"Earlier, we expected the inflation rate to come down to 5.5 per cent by March, 2011. We projected this number in our earlier meeting. We will revisit that number in the July policy meeting," Subbarao told reporters here.
    
Food price inflation for week ended June 5 was at 16.12 per cent compared to 16.74 per cent in the previous week. Inflation has been hovering at double digits for the past several weeks.
    
However, he said despite this fact, the growth numbers are quite encouraging and investment is picking up.