More rate cuts if monsoon is good, says Raghuram Rajan

Reserve Bank of India Governor Raghuram Rajan said more rate cut decisions by the apex bank will depend on the inflation and monsoon rains in the country.

"We're looking at inflation. If it continues on a downward path, that would create room. We're looking for signs of a good monsoon. Unfortunately, India is still somewhat sensitive to monsoons, though people find it hard to see a link between monsoon and food prices," Rajan said in an interview to the Wall Street Journal.

Explaining the difference between good and bad monsoon and its impact on the economy, Rajan said: "The last two years have been drought years, which is typically 15 percent below long-period average. So this year the forecasts are El Niño is going to weaken, La Niña is going to strengthen. That's good for the monsoon. All the forecasts are it's going to be good. So I'm crossing fingers, hoping it works out."

Earlier this month, the Reserve Bank of India (RBI) had cut its key lending rate by 25 basis points.

The repurchase rate, or the short-term lending rate for commercial banks on loans taken from the RBI, stands lowered at 6.5 percent from 6.75 percent. The reverse repurchase rate, or the short-term borrowing rate, has been adjusted upward to 6 percent from 5.75 percent.

The changes were carried out in the monetary policy for the current fiscal announced by Rajan.