RBI Will Cut Interest Rate at the Right Time: GS Sandhu

With RBI keeping its short term lending rate unchanged citing inflation risks, Financial Services Secretary G S Sandhu today said the central bank understands the needs of market and would cut interest rate at the right time.

"RBI is fully understanding the issue, it fully understands needs and expectation of markets, so they will take a view (on cutting policy rates) when the time is right," Sandhu said at an event when asked to comment on RBI's continued status quo on policy rates in today's s bi-monthly monetary policy.

Reserve Bank Governor Raghuram Rajan today left all key rates unchanged citing continued risks to inflation and difficult external situation especially on the geopolitical front.

This is the fourth consecutive time that the RBI has kept key interest rates unaltered despite clamours from the industry to cut rates to boost economy.

The short-term lending rate (repo) rate remained at 8 per cent, and the cash reserve requirement of banks at 4 per cent. The statutory liquidity ratio (SLR) has also been retained at 22 per cent.

Explaining the rationale for status quo policy, Rajan today said though WPI inflation has ebbed to levels consistent with 8 per cent inflation by January 2015, "there are risks from food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly."

He said there are "uncertainties" over food inflation even though 6 per cent retail inflation target by January, 2016, remains a possibility.

"The future policy stance will be influenced by the RBI's projections of inflation relative to the medium term objective of 6 percent by January 2016, while being contingent on incoming data," Rajan said.

Consumer price inflation stood 7.8 percent in August.