Rate hardening to depend on inflation: Rangarajan

The hardening of interest rates would depend on inflation in the coming two to three months, Chairman of Prime Minister’s Economic Advisory Council, C Rangarajan, said on Tuesday.

“There has been some decline in headline inflation. If this trend continues, there should not be any need for further rise. On the other hand, if inflation picks up, it would have to be dealt with,” Rangarajan said.

WPI-based inflation fell to an 11-month low of 7.48 per cent in November, as against 8.58 per cent in October. When asked about the liquidity situation, he said the tightness would ease in the last quarter as government expenditure was expected to pick up.

“I think the central bank has recognised that there is a liquidity constraint. That is why they took some measures to expand liquidity in the banking system,” he said. In its mid-quarter policy review, the Reserve Bank of India announced a mega Rs 48,000-crore bond purchase programme under open market operations and reduced banks’ statutory liquidity ratio by 100 bps to 24 per cent to alleviate pressure on liquidity.