Patna: The Reserve Bank of India (RBI) on Friday said interest rates have peaked and indicated that it would reduce them after taking into account the Budget proposals and global commodity prices.
"The inflation and interest rate cycles have peaked and have to come down and for that the RBI will look at events like the budget (2012-13), international crude oil prices and other variable factors to calibrate its policies," RBI Governor D Subbarao said in Patna on Friday.
Finance Minister Pranab Mukherjee will present the Budget for 2012-13 fiscal in the Lok Sabha on March 16 during which he is expected to announce steps to arrest slowdown in economic growth.
Finance Minister Pranab Mukherjee will present the Budget for 2012-13 fiscal in the Lok Sabha on March 16.
The GDP growth rate in 2011-12 is expected to moderate to 6.9 per cent from 8.4 per cent a year ago.
Defending RBI's decision to hike interest rates (Repo) 13 times since March 2010, Subbarao said the measures were required to tame inflation which had significantly crossed the threshold levels.
The RBI Governor said growth had to be sacrificed to bring down inflation. Overall inflation in January stood at 6.55 per cent.
On the overall health of the financial system, Subbarao said it is sound and prudently regulated to weather the impact of global economic crisis despite the fact that "our economy is more globalised than we tend to acknowledge".
"However, it was due to sound and prudent monetary policy of the RBI that our country was by and large saved from the blues of global economic crisis and the savings of our people stood protected in contrast to their counterparts in the US and other Western countries," he said.
The RBI Governor further said that the central bank has unlocked liquidity with a view to sustain growth. In its third quarter policy review last month, the RBI had lowered the cash reserve ratio by 0.50 percentage points to 5.5 per cent, releasing Rs 32,000 crore worth primary liquidity into the system.
The apex bank, however, did not reduce interest rates ignoring the advise of some of the members of its Technical Advisory Committee (TAC).