The Reserve Bank expects inflation to moderate further in the next two-three months that may lead to a cut in interest rates by the Central Bank, RBI Deputy Governor K. C. Chakrabarty said today.

“We are trying to bring down inflation ... There is a probability that inflation would come down in the next few months. In the next two-three months inflation should come down,” he said after inaugurating a rural branch of ICICI Bank here.

Asked if there is a possibility of RBI reducing policy rates in its mid-quarter policy review on December 18, Chakrabarty said the repo rate would come down when inflation comes down.

He said WPI inflation has come down from 10 per cent. Wholesale price index-based inflation for October moderated to 7.45 per cent from 7.81 per cent in the previous month.

Stressing that high inflation is inimical to growth, the Deputy Governor said: “People are saying because of the high interest rate, growth is coming down. What we are saying is the interest rate is high because inflation is high.”

That’s why RBI’s first concern is to bring down inflation, he said, adding, “unless inflation comes down the interest rate cannot come down“.

In its last policy review in October, RBI had left the repo rate unchanged. However, it reduced the cash reserve ratio (CRR) by 0.25 per cent, leading to the injection of additional liquidity of Rs 17,500 crore in the banking system.

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