RBI should not cut interest rates: Expert


NEW DELHI : With an increase in both wholesale and retail inflation indices in February indicating that India has left behind the "most benign part of retail inflation", an expert has suggested that the RBI should postpone further cuts in interest rates.


Official data on Tuesday showed the annual rate of inflation based on wholesale prices  rose to over a three-year high of 6.55 per cent in February owing to costlier food and fuel -- up from 5.25 per cent in the previous month. 

Similarly, February's retail inflation edged up to a four-month high of 3.65 per cent from 3.17 per cent reported for the previous month.

"I think the most benign part of retail inflation is behind us. GST (Goods and Services Tax) is a potential spoiler," Abhijit Sen, economist and former member of the Planning Commission, which was disbanded in 2014, told BTVi in an interview. 

"There is a probability, increasingly being forecast by various agencies all across the world that we might actually end up with El-Nino this year, and if that happens early, it would be a major spoiler. 

"The Reserve Bank of India (RBI) would be well advised not to cut interest rate any further. But simply wait.. the chances are it's (inflation) not going to go above 5 per cent.

In connection with GST, the Central Board of Excise and Customs (CBEC) has said that taxes were likely to "increase a bit" from the current level.

The RBI has said that it is looking at inflation ranging between 4.5-5 per cent in the latter half of the current fiscal.

On the issue of farm loan waivers, Sen said such a move would be "disastrous" for the banking system.

"This was a definite election promise. It's not just BJP, everybody else is making this promise. It's coming at a time when banks are in a much worse position," he said.

"Even in 2009, my advice to the government then had been don't have, for moral hazard reasons, across the board waiver, have a much more easier but a regulated one-time settlement policy. 

"It would be disastrous at this point for the morale of the banking system, for the credibility of the banking system to have a across the board loan waiver," Sen added.

 Image Credit : THE STATESMAN

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