Fed cut to determine RBI policy: Reddy

The Reserve Bank of India (RBI) would consider last week's Fed rate cut as a "relevant input" in determining policy, Governor Y V Reddy told the BBC in an interview today.

"Since we are increasingly getting integrated with the rest of the world, increasing weight is given to global developments, in particular, developments in the United States," Reddy said.

The Fed reduced its key rate for the first time since 2003 by a bigger-than-expected half point to 4.75 per cent on September 18.

The RBI, which has raised borrowing costs nine times since October 2004 to curb inflation, left its overnight lending rate unchanged at 7.75 per cent at its last meeting on July 31.

The central bank is not worried about inflation now, Reddy said. The country's inflation slowed to 3.32 per cent in the first week of September, the lowest rate since 2002.

"We are happy that inflation expectations are quite benign now. We are looking at a medium-term objective of 4-4.5 per cent, and ideally a rate toward 3 per cent," Reddy said.

The impact of a possible US economic slowdown following the sub-prime credit crisis may be less on India, compared with other emerging economies, according to Reddy.

"We are less dependent on the US economy compared with other emerging-market economies," he said.

"Yes, there will be some impact, but it is likely to be less than most other emerging-market economies."second-fastest expanding major economy, Reddy said. Annual growth in farm output fell to 2.2 per cent in the five years through March from 3.1 per cent during the 1990s and 4.7 per cent during the 1980s, according to the RBI's annual report released August 30. The economy grew 9.4 per cent in the financial year through March, accelerating for a third straight year.

"Sixty per cent of the population is dependent on agriculture and if agriculture is growing badly at 2.5 per cent or something like that, that means prosperity is eluding them,'' Reddy said. "The huge productivity increase can't go on forever only in manufacturing and services.''