RBI decision to retain interest rates is right move: Basu

Describing the RBI decision of not cutting key interest rates to check price rise as the "right move", outgoing Chief Economic Advisor Kaushik Basu today the expressed hope that inflation would come down to below 7% in September.

"My expectation is that inflation in the month of September will go below 7%," he said while commenting on the RBI decision to keep interest rates unchanged for the second time in a row.

The central bank, however, lowered the Statutory Liquidity Ratio (SLR) -- the amount of deposits banks park in government bonds -- by 1% to 23%.

"RBI has said pause. RBI has made a right move and the lowering of SLR is a very important small move (will) give right indication," Basu said.

 

On economic growth, he said that the world is going through difficult times and it is imminent that GDP would slow down in the first two quarters of the fiscal.

"In the first two quarters (April-June, July-September), growth will remain below 6%. Hopefully there will be a pick up after that," Basu said, adding that the government needs to bring in fundamental changes and move forward to achieve high growth momentum.

The Wholesale Price Index-based inflation, at 7.25% in June, is much above the RBI's comfort level of 5%.

Besides, retail inflation too remains at the elevated level of 10.02%.

Economic growth has slowed to nine-year low of 6.5% in the 2011-12 fiscal, and 5.3% in the January- March quarter. RBI lowered the growth forecast for the current fiscal to 6.5% from 7.3% earlier.

In his last media interaction as CEA in the Ministry of Finance, Basu said that there should be some easing of interest rates in the medium to long term. Basu is retiring today.