Reserve Bank Governor Raghuram Rajan said that this monsoon we can hope for a rate cut as rain always brings prosperity with it. The food prices may face deflation, and there may be a possibility of further interest rate cuts.
This statement was made by Raghuram Rajan in Stockholm at the Riksbank Macroprudential Conference. The further rate cut will surely pacify the investors as RBI is planning to bring down inflation to 4% from 6%.
“Assuming reasonable food management, inflation is expected to be pulled down by base effects till August but to start rising thereafter to about 6% by January 2016, slightly higher than the projections in April,” Raghuram Rajan said during the monetary policy review earlier this month.
Rajan continued, “Putting more weight on the IMD’s monsoon projections than the more optimistic projections of private forecasters as well as accounting for the possible inflationary effects of the increases in the service tax rate to 14%, the risks to the central trajectory are tilted to the upside,”
The Indian Meteorological Department (IMD) had forecast lesser rain in this monsoon. The month of July will be a crucial month in the monsoon and will face a deficiency of rain. Rajan stated that the further rate cut might take rainfall into consideration at the time of his June 2 policy announcement.