India Finance Minister Says Expects Interest Rates to Come Down
Monday, 19 March 2012 | 12:44
Finance Minister Pranab Mukherjee said he expects India’s central bank to reduce interest rates, helping revive sentiment after economic growth slowed.
“I expect policy rates to be reversed by the central bank in coming months,” Mukherjee said at a conference in New Delhi today. “That should improve sentiment.”
The minister said in his March 16 federal budget that India’s economic expansion may revive to as much as 7.85 percent in the fiscal year starting April 1 and that inflation will ease. At the same time, he acknowledged yesterday that his decision to increase the service and excise taxes to 12 percent from 10 percent may spur some price pressures.
The Reserve Bank of India signaled before the budget that better control of the nation’s fiscal deficit would boost scope to lower borrowing costs, which are at the highest level since 2008, at 8.5 percent. The RBI raised the repurchase rate by a record 3.75 percentage points from 2010 to October last year to fight price increases, with February’s 6.95 percent inflation rate holding close to a 26-month low.
“Inflationary pressures need to be at a moderate level in the next financial year,” Mukherjee said. “I am not talking about a 4 percent level; 6 to 6.5 percent will be an acceptable level.”
In the budget speech, Mukherjee forecast a narrowing in the fiscal gap to 5.1 percent of gross domestic product in the next financial year. He said the shortfall for the year through March 31 will be 5.9 percent, wider than the 4.6 percent target set a year ago.
Aside from tax increases, Mukherjee proposed restricting a subsidy program spanning diesel to fertilizers to less than 2 percent of GDP, beginning in the year to March 2013. The budget also proposed changing laws so India can retrospectively tax capital gains by foreign companies.
Economic growth moderated to 6.1 percent last quarter from a year earlier, the slowest pace in almost three years, as costlier credit hurt consumer spending and dented investment.
There are no comments available.