The Reserve Bank of India will have greater room to cut policy rates on July 31 if the pressure on the rupee were to ease, a top policymaker has said.
“The pressure on rupee had prevented RBI in the earlier occasion to go in that direction (policy rate easing) and it took a pause. And therefore, if the pressure on the rupee eases, then it will give greater room for RBI,” C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council said on the sidelines of an event here.
Rangarajan said the RBI was also largely influenced by external sector considerations at its recent mid-quarter policy review meeting on June 17.
All-time low
Although the Wholesale Price Index was showing a downward trend and the non-food manufacturing inflation rate was below 3 per cent, the central bank decided to take a pause.
The rupee hit an all-time low of over 60 against the dollar on June 26 amid large outflows due to debt sale by foreign institutional investors. However, it recovered to close at 59.39 on Friday, extending its rebound from a record low. The Government’s decision to raise natural gas prices also boosted investors’ confidence in Indian assets.
Stocks and bonds surged the most in at least a year. “I think the rupee went down but then it also recovered very much in the last two days. I think capital flows will come back and I think the rupee will get further strengthened,” Rangarajan said.
The RBI had earlier this month kept the repo rate and cash reserve ratio unchanged at 7.25 per cent and 4 per cent, respectively.