Rate cut possible only if inflation eases: Rajan

Mumbai, Aug 29 (PTI) Inflation projections are still atthe upper limit of Reserve Bank’s target and the policy ratecan be cut only if inflation eases, outgoing Governor RaghuramRajan said today. Retail inflation shot up to nearly 2-year high of 6.07per cent, while the one based on wholesale prices soared to a23-month high of 3.55 per cent in July. "Inflation projections are still at the upper limits ofRBI’s inflation objective. With RBI needing to balance savers’desire for positive real interest rates with corporateinvestors’ and retail borrowers’ need for low nominalborrowing rates, the room to cut policy rates can emerge onlyif inflation is projected to fall further," Rajan wrote in theforeword to RBI Annual Report 2015-16. He said the short term macroeconomic priorities of theRBI continue to focus on bringing down inflation towards thegovernment-set target of 4 per cent. So far, the RBI has followed a gentle glide path, aimingat 5 per cent by March 2017 after having brought it below 6per cent in January 2016, Rajan said. RBI is also working with the government and banks onspeeding up the resolution of distressed projects andcompleting the clean-up of bank balance sheets; ensuring bankshave the capital to make provisions, support new lending, andthus pass on future possible rate cuts, he added. He said economic growth, while showing signs of pickingup, is still below the levels that the country is capable of. The key weakness is in investment, with private corporateinvestment subdued because of low capacity utilisation, andpublic investment slow in rolling out in some sectors, henoted. The Governor said willingness of banks to cut lendingrates is muted. "Not only does weak corporate investment reduce thevolume of new profitable loans, their stressed assets havetightened capital positions, which may prevent them fromlending freely," Rajan said. MORE PTI HV KRKSA