Low inflation, fiscal rectitude must for lower cost of capital, says RBI

India requires sustained low inflation and a credible programme for fiscal rectitude to lower the cost of capital, Urjit Patel, a deputy governor of the Reserve Bank of India (RBI), said on Thursday, striking a hawkish note after government calls for interest rate cuts to boost the economy.

The central banker also said in a speech to a business conference that he expected current account deficit (CAD) to be 1.5 per cent of gross domestic product (GDP) in the 2015/16 fiscal year.

"New banking licences issued by the RBI were also aimed at lowering the cost of capital", Patel said. His remarks addressed concerns that commercial banks have failed to pass on recent cuts in the RBI's main policy rate to their borrowers.

(Reuters)