Policy rate cuts by RBI depend on inflation numbers: Rangarajan

C RangarajanThe possibility of a cut in key policy rates by the Reserve Bank of India (RBI) depends on inflation numbers, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said.

Mr. Rangarajan said that the central bank could cut policy rates if rate of inflation continued to trend downwards.

Speaking on the topic, he said, "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."

In January, wholesale inflation slipped to a seven-month low of 5.05 per cent, thanks to fall in food prices. It was recorded at 6.16 per cent in December.

Fall in food prices also dragged retail inflation down for the second month in a row to 8.79 per cent in January. It was the lowest rate of retail inflation in around 24 months. Earlier, Consumer Price Index (CPI)-based inflation slipped form 11.16 per cent in November to 9.87 per cent in December.

The central bank takes both CPI and WPI-based inflation into account while deciding its monetary policy. In its monetary policy review last month, the central bank had increased key interest rates by 0.25 per cent. As inflation numbers are on the decline, the apex bank is now widely expected to cut policy rates.

The RBI's next monetary policy review is scheduled for April 1, 2014.