RBI rate cuts to depend on inflation scene: Rangarajan

Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan on Friday said policy rate cuts by the RBI will depend on inflation movement.

"I think that it (whether RBI should cut interest rates) will depend on inflation numbers. If inflation continues to trend downwards then it will give room to Reserve Bank of India (RBI) to cut rates," Rangarajan said.

The Reserve Bank's next policy review is scheduled for April 1, 2014.

Wholesale inflation has eased to a seven-month low of 5.05 per cent in January, on decline in the rate of price rise in food articles, mainly vegetables.

This was the second straight month of decline in wholesale price based inflation. The WPI was at 6.16 per cent in December.

Retail inflation has also fell for the second consecutive month and eased to 24-month low of 8.79 per cent in January mainly due to a drop in food prices.

Inflation as measured by the Consumer Price Index (CPI) for December was 9.87 per cent down from 11.16 per cent in the previous month.

The decline in inflation is much on the expected lines of the Reserve Bank, which had hiked key interest rates by 0.25 per cent in its monetary policy review last month.

The Reserve Bank factors in both retail and wholesale price based inflation data in its monetary policy.

There have been demands from various quarters that the RBI should look at relaxing interest rates as inflation was showing signs of easing and slowdown persisted in industrial output.

On third quarter GDP growth number, Rangarajan said, "It (3rd quarter GDP number) is little below expectation but I think that even with this growth rate in third quarter the overall growth rate for the FY 14 will still be 4.9 per cent as indicated by the CSO."

Indian economy grew by 4.7 per cent in the third quarter this fiscal mainly due to improved performance of agriculture and services sector.