GOVERNMENT OF INDIA
Ministry of Finance
DEPARTMENT OF ECONOMIC AFFAIRS
UNSTARRED QUESTION NO 4187
TO BE ANSWERED ON 06.05.2008
Interest Rates in Medium Term Perspective.
SHRI RAJEEV CHANDRASEKHAR
Will the Minister of FINANCE be pleased to state:-
(a) What is Government’s view on interest rates in the medium term and what are the implications of the United States of America’s (USA) Federal rate cut on the Indian Rupee; and
(b) What is Government’s information about the strategies of central Banks of other countries in Asia and their response to the USA’s Federal cut in interest rates?
(MINISTER OF STATE IN THE MINISTRY OF FINANCE)
(SHRI PAWAN KUMAR BANSAL)
(a) With comfortable liquidity conditions in the system and no change in the policy rates by the Reserve Bank of India (RBI) in their Annual Policy Statement (April 2008) for 2008-09, interest rate scenario in the near term, barring any abrupt changes in the sentiments or global liquidity conditions, appears to be stable. In the Policy Statement, the RBI noted the heightened global uncertainty, but stressed that it had sufficient headroom to react flexibly to changing global financial condition through the deployment of instruments such as the Market Stabilization Scheme (MSS), the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR) and the Liquidity Adjustment Facility (LAF) for active liquidity management in both directions, complemented by prudential regulations and instruments for capital account management.
(b) Central Banks of other countries calibrate their monetary policy strategy according to macroeconomic and monetary situation prevailing in their economy and to achieve the envisage policy targets. According to RBI’s Annual Policy Statement for 2008-09, central banks of Korea, Malaysia and Thailand have not changed their rates since last quarter of 2007. The People’s Bank of China raised lending rate to 7.47 per cent in December2007from 7.29 per cent in September 2007.