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ICICI’s Prasanna Says India Rate Cuts Depend on Government Steps

Prasanna Ananthasubramanian, chief economist at Mumbai-based ICICI Securities Primary Dealership Ltd., comments on the Reserve Bank of India’s decision to hold interest rates for a second consecutive policy meeting.

Governor Duvvuri Subbarao kept the repurchase rate at 8 percent, the Reserve Bank of India said in a statement in Mumbai today. The statutory liquidity ratio was reduced to 23 percent from 24 percent, effective Aug. 11, the first cut since 2010.

“Inflation has become so sticky that they have no other choice. In the early part of the year, it looked like prices were coming down but that was not the case. Now you have monsoon related issues and lot of prices haven’t been revised. So there are suppressed prices, which can go up. Risks to inflation are there and are clearly visible and a central bank cannot ignore these.

‘‘For the future, there is still scope and the governor has left himself some flexibility to cut rates in the second half of the fiscal. Obviously, it is conditional on steps being taken by the government. So if we assume the government, over a period of time, will do certain things, then we are looking at a 50 basis point rate cut.’’

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