RBI, Rangarajan talk of freeing interest rates

Reserve Bank of India (RBI) deputy governor K C Chakrabarty said the central bank favours deregulation of all interest rates including the savings deposit rate.“Direction is very clear. We are in favour of deregulating all interest rates. But, decision will be taken only after adequate debate,” he said.Savings bank rate, which is an administered rate, is currently at 3.5%.Prime minister’s Economic Advisory Panel head C Rangarajan also favoured dismantling the administered interest rate structure. He said deregulation in savings deposit rates was just a matter of time.The RBI deputy governor and Prime Minister’s Economic Advisory Panel head were speaking to the media at the sidelines of a banking event in Mumbai on Thursday.Chakrabarty said deregulation is a part of financial reforms approved by the Parliament and is not under the purview of RBI policy. “Only sequencing of reforms is being discussed,” Chakrabarty said.When asked whether there was a big difference in savings bank rate across banks, Chakrabarty said, “In highly competitive markets prices do not vary much. What rate a customer gets depends on market conditions...(if rates vary too much) customers will move from one bank to another.”Meanwhile, both Rangarajan and Chakrabarty said they were concerned about soaring prices, moving bond yields off day lows as investors saw a greater chance of an early interest rate hike despite a slight easing in food and fuel price inflation.Pressure has been mounting on the RBI to raise rates ahead of a scheduled July 27 policy review after the wholesale price index rose 10.16% in May, the highest level in the G20 group of leading economies. Food inflation dipped to 16.12% on June 5 from 16.74% a week ago.“We have said in January itself that we are moving from an accommodative policy to tightening policy measures. We won’t announce and do a rate hike. Whenever it is felt necessary and appropriate, it will be done,” Chakrabarty said.Rangarajan also said inflation has reached a very uncomfortable level. “The double digit inflation has remained for almost three to four months. It can no longer be termed as purely food inflation because the figure for the manufacturing sector is also reasonably high. Some action on the demand side is called for. It is for the RBI to decide whether to take action immediately or later. But I think the question of tightening of policy has become imperative.”Chakrabarty is not directly involved in monetary policy as other members of board. Rangarajan is seen as having the ear of Prime Minister Manmohan Singh but has little direct influence over monetary policy. (with Agency inputs)