'Interest rate decision will depend on inflation situation'

The Reserve Bank of India on Thursday said it will assess if the declining trend in inflation is sustainable and accordingly take a decision on reducing interest rate. Inflation based on WPI declined to 6.87 per cent in July, from 7.25 per cent in June. Still, it is much above RBI's five-six per cent comfort level. However, with the easing of inflation and contracting industrial output, the industry is clamouring for cut in interest rate. "Interest rates to fall when inflation drops...," RBI Deputy Governor K C Chakrabarty said after meeting Economic Affairs Secretary Arvind Mayaram here.

He said five per cent inflat-ion is in India's comfort zone.

RBI is scheduled to review its monetary policy on September 17.

In its monetary policy review last month, RBI had kept key interest rate (repo rate) unchanged at eight per cent in the view of high inflation. After taking charge of the Finance Ministry this month, P Chidambaram had said high interest rates "inhibit the investor and are a burden on every class of borrowers.”

He had said steps would be taken to bring down interest rates.