INTEREST RATES MAY EASE AFTER STABILITY IN FOREX MARKET
" RBI will have more space to ease interest rates once the stability is restored in the forex market."
Dr.C.Rangarajan, Chairman, PMEAC
Prime Minister's key economic advisor C Rangarajan today said RBI will have more space to ease interest rates once the stability is restored in the forex market. If Rupee stabilizes it would be possible for monetary policy to adopt a different stance, an easier stance he said. Rangarajan, a former RBI Governor, also underlined the need for restoring stability in the different spheres of economy. "We need to bring about price stability, stability in foreign exchange market and stability in fiscal system. We have deviated from it in the last few years," he said. Reposing faith in the government's resolve to contain CAD at USD 70 billion in current fiscal, Rangarajan said it was possible to achieve the target with some adjustment in gold, oil and coal imports. CAD, which reflects the difference between outflow and inflow of foreign exchange, touched a record high of USD 88.2 billion in last fiscal. "In short term we have to ensure capital flows are adequate (to finance CAD) and in medium term we need to bring down the CAD," the PMEAC chief said. Talking about growth, Rangarajan said the county needs to address the issues that had stymied GDP expansion. "Agenda for growth can also be called agenda for reforms," he said, adding that high growth does not warrant high inflation. On lowering expenditure on subsidy, Rangarajan said it was one area which needs to be addressed by the government, which had proposed to bring down subsidy to 2 per cent of GDP. While emphasising the need to provide fully for the the food subsidy, he said, the government could look to pruning subsidies in other areas. As regards fiscal consolidation, Rangarajan said the government would work towards achieving target specified in the FRBM Act.