Govt hints at softer interest rate regime
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In a major relief to the domestic industry that is battling twin problems of high interest rates and a demand slowdown, finance minister P Chidambaram on Monday hinted at a possible reduction in interest rates even as the central bank and the government would work together to contain prices.
Chidambaram in his maiden statement after taking over the finance portfolio said, "We are conscious that current interest rates are high... Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers. We will take appropriate steps in this regard."
High interest rates not only inhibit investors but are a burden on every class of borrowers, be it a manufacturer of goods or a purchaser of a home or a two wheeler or a student who takes an education loan, he said.
Earlier in the day, Chidambaram had met Reserve Bank of India governor D Subbarao and discussed the macro-economic situation. "I met the finance minister after he took charge and reviewed macro-economic situation," Subbarao said after the meeting adding that he would meet Chidambaram again for a detailed discussion on the economy, although he did not discuss any specific policy action.
Despite a clamour for a cut in interest rates from much of India Inc, the RBI chose to maintain a status quo in its quarterly review of the monetary policy last month as headline inflation remained at 7.25 per cent in June, while consumer price index-based retail inflation stood at 10.02 per cent.
But with growth slipping to a nine-year low of 6.5 per cent in 20111-12 and 6 per cent growth expected in this fiscal as the economy battles dipping industrial production and a drought, the government is trying its best to revive the economy. With revving up growth clearly his agenda, Chidambaram announced a list of steps that the government would take over the next few weeks to boost investor confidence including review of contentious tax proposals, fiscal consolidation and special packages for the laggard manufacturing and exports sector.
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