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Reserve Bank may further lower the interest rate if inflation continues

Reserve Bank may further lower the interest rate if inflation continues to ease and the monsoon turns out to be good, Governor Raghuram Rajan has said.

“We are looking at inflation. If it continues on a downward path, that would create room (for further rate cuts),” he said.

Earlier this month, RBI reduced its policy rate by 0.25 per cent to 6.5 per cent — its lowest level in more than five years. While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5 per cent cumulatively since January 2015.

Still, the industry wants further rate cuts from RBI to boost investment. During the same time period, the banks have lowered their own lending rate by 0.25-0.5 per cent.

Rajan, who is here for the spring meetings of the International Monetary Fund and the World Bank, further said RBI is also looking at how the monsoon progresses this year after two consecutive bad years.

“We are looking for signs of a good monsoon.

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