RBI may hold policy rates as inflation declines: Rangarajan

Ahead of RBI's monetary policy this week, the Prime Minister's economic panel today said the central bank might hold key policy rates as inflation for November has fallen to 11-month low of 7.48 per cent.

"...Perhaps the declining trend in inflation might tilt in favour of holding on to the present situation," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan told PTI.

RBI is slated to come out with its mid-quarterly monetary policy on December 16. Inflation declined to 7.48 per cent in November, mainly on falling prices of certain food items. Inflation was 8.58 per cent in October.

To tame inflation, RBI had last month increased its short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 6.25 per cent and 5.25 per cent.

It was the sixth time this fiscal that the apex bank had raised key lending and borrowing rates to cool inflationary pressures in the economy.

Going forward, Rangarajan said, RBI will watch inflation numbers for primary articles for the next two weeks and if the decline in inflation continues, it might hold key policy rates beyond this week's decision as well.

"If this trend continues, perhaps the RBI may not initiate any action. But it all depends upon the trend noticed in the next two weeks," he added.

Rangarajan said inflation is likely to decline to around 6.5 per cent by December-end and 5.5 per cent by March.

"I think by end December, we might be closer to 6.5 per cent and perhaps by March 2011, something around 5.5 per cent," he added.