Time is ripe for up to 1% rate cut by RBI: Arvind Panagariya

Expresses hope that the GDP growth can cross 8% in the current fiscal

Pitching for rate cut by the Reserve Bank, NITI Aayog Vice-Chairman Arvind Panagariya today said that "time is ripe" for 0.5 per cent to one per cent reduction in benchmark lending rates.

He also expressed hope that the GDP growth can cross eight per cent in the current fiscal as investment sentiments are turning around and three quarters are still remaining.

In an interview on private business news channel CNBC TV 18, he said, "We need a rate cut of 50-100 basis point. I think time is ripe."

On the possible Fed rate hike impacting RBI decision, he said the interest rate increase by the US central bank would not be very steep so it should not make difference.

"It's not going to be major rate hike by Fed but whatever Fed does we may be ripe for 50 basis point rate cut," he said.

When asked would it be right if RBI cuts rate by just 0.25 per cent, Panagariya said, "the direction would be right and would add to past 75 basis point reduction and would become one percentage point. May be this will begin the process of the pass through with the little stronger effect."

Currently, pass through is 0.3 per cent out of 0.75 per cent cut in rates by RBI since January this year. The policy repo rate, at which RBI lends to commercial banks for short term, is 7.25 per cent, at present.

On the first quarter muted growth numbers, Panagariya said these are preliminary figure for GDP and there is possibility of it getting revised upwards.

The GDP growth slowed to 7 per cent in the first quarter of the current fiscal, from 7.5 per cent in the previous quarter, amid deceleration in farm, services and manufacturing sectors.

"I would not write off the prospect of getting past eight per cent growth rate. We have had quarter when we had grown nine per cent, 10 per cent. Three more quarters are left. Pick up required is not huge when we spread it to three quarters," he said.

He further said that investments are picking up and sentiment is turning positive.

"Foreign investors who were keeping out are now beginning to return to India. Investors sentiment is now turning around," he said.