RBI may cut rates early next year, says Rangarajan

The Reserve Bank of India (RBI) may cut rates early next year, said C. Rangarajan, former chairman of the prime minister's Economic Advisory Council.

He said the central bank may go for the rate cut as price situation is showing improvement.

"The price situation is showing definite improvement. I expect probably changes will come in the early part of next year. It could happen anytime as indicated by the recent policy statement," he told reporters here Thursday on the sidelines of an event.

The former RBI governor, however, cautioned that volatility in the currency markets should also be taken into consideration before taking any policy decision.

Asked about Current Account Deficit (CAD), he said it could be in the same range of last year even though fall in oil prices is going to benefit the country in reducing the import bills.

"The initial expectation was, because of the fall in oil prices the CAD may be even lower than the last year. But because of the pickup of the gold imports and all that, I expect the CAD to be the same as the last year... something like 1.75 percent of the gross domestic product (GDP)," he said.

The noted economist believes the impact on the CAD will be beneficial as a result of fall in oil prices.

He said until the oil prices settle down, there could be some volatility and uncertainty in the markets as the fall in oil prices will adversely affect the major oil producers but all the net oil importing countries will benefit as a consequent of this fall.

"The only negative impact can come in terms of our people going abroad in the Middle East if the oil income comes down in those countries," he said.

Rangarajan does not expect any drastic reversal of gold import policy by the government.

Earlier addressing an international conference on information systems security at the Institute for Development and Research in Banking Technology (IDRBT), Rangarajan said a well structured cyber crime can be a threat to a nation's security and economy.

He called upon the banking industry to take appropriate actions to make our systems safe, adopt appropriate early warning systems and evolve measures to respond quickly to cyber attacks.

"In the olden days to destroy an economy, one of the standard methods adopted by enemy countries is to inject fake currency into the economy...Modern day cyber crimes are even more dangerous. They can destroy the banking systems or the communications systems in the country," Rangarajan added.

He said with over 500 million bank accounts in the country, it is estimated that the Indian banking system produces over one billion transactions a day.