The Repo Rate Hike: Inflation Gave the Cover, the Rupee Gave the Reason

PM sees scope for interest rate moderation

Prime Minister Manmohan Singh said he has requested the central bank to look into high interest rates

New Delhi: Prime Minister Manmohan Singh said on Saturday plenty of liquidity and low inflation gave room for further interest rate cuts.

Speaking to top Indian businessmen, Singh also said there were encouraging signs in some sectors of the economy.

“With ample liquidity and low inflation, there is scope perhaps for a further moderation in interest rates,” Singh said.

“While public sector banks have reduced the prime lending rates in the last three months between 150 and 200 basis points, other scheduled commercial banks are yet to respond in equal measure,” he said.

Since October, the Reserve Bank of India (RBI) has cut its key lending rate by 400 basis points. The government has cut factory gate duties and service tax rates to protect growth and jobs.

But commercial banks have been reluctant to lend due to increased risk aversion.

Asia’s third-largest economy is estimated to slow to 7.1% in 2008-09 from growth of 9% or more in previous years as the global slowdown hurts key sectors of the economy.

But Singh said the auto, steel, cement and farm sectors were showing some signs of revival.

“The auto sector after a difficult patch seems to be showing signs of recovery. Food grain production for 2008-09 is likely to be in excess of 228 million tonnes,” he said.

“The rural demand for goods and services appears quite robust and the outlook in the agricultural sector gives room for optimism”.

Singh said the government was closely monitoring sectors which were still facing difficulties.

“We are aware that a big push to infrastructure would have a counter-cyclical influence and have taken steps to ensure that this happens in 2009-10 and beyond,” he said.