Expect to see rate cut in next monetary policy: C Rangarajan

"I think two things are happening. There is devaluation of currencies like the Chinese currency and other currencies and the international commodity prices are coming down. So, all that would really indicate that we should go for a rate cut," said Rangarajan.

Sep 04, 2015 09:09 IST India Infoline News Service

C Rangarajan
With the consumer price index (CPI) standing at 4% currently which is below the target rate, India is strong enough to face any global turbulence, unless anything dramatic occurs to impact world economy. Hence, a rate cut by the central bank in the next policy is likely, says former Reserve Bank of India governor C Rangarajan in an ETY report.

Other countries are likely to get more affected by the US-rate hike while the impact on India will be minimal, owing to the respectable position the country has acquired in terms of its growth. In May 2013, when India’s current account deficit ran much higher , the impact of US winding down its asset purchases was more on India, as mentioned in the report.

Low commodity prices and devaluation of currencies such as the Chinese yuan indicated that India should go in for a rate cut, he stated.

"I think two things are happening. There is devaluation of currencies like the Chinese currency and other currencies and the international commodity prices are coming down. So, all that would really indicate that we should go for a rate cut," said Rangarajan.

The former central banker had also stated India could at best achieve 7.5% in the current year.

If the economy is to grow 7.5% or plus, obviously the rate of growth of economy in the next three quarters will have to be significantly higher. So, therefore, taking all these factors into account, the idea of growing at 8% is ruled out. Perhaps 7.5% for the year as a whole is what could be achieved," he said.

India is not in deflational territory since wholesale price index (WPI) and CPI, both are the determinants of GDP deflator. Since WPI is in negative territory the combination of the two is giving a low GDP deflator, stated Rangarajan as mentioned in the report.

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