RBI should cut key rates by another 100 bps, says Kamath

Forecasting that inflation is inching towards zero, ICICI Bank MD and CEO K V Kamath suggested that the Reserve Bank of India (RBI) should further cut key policy rates by 100 basis points to usher in a low-interest rate regime.

“Let us start by cutting them (repo and reverse repo rates) by 1 per cent or so, and see what happens,” Kamath said, when asked what his advise would be for RBI to reverse the slowdown.

“It would be in everybody’s interest to work interest rates down. Inflation is clearly moving towards zero. It is the right time to work on this front now. The economy thrives in a low-interest rate scenario. By the time inflation comes to zero or near zero, we have interest rates down to where we wanted...So I think use repo and reverse repo in small measures and see what they do to interest rates,” Kamath said.

Inflation has nearly halved from the peak of 12.91 per cent in August.

RBI, Kamath said, could give further fillip to interest rates so that the benefits could be passed on to both industry as well as consumers. Appropriate signals through cut in key policy rates, he said, would “indeed bring down the rates from where they are today”.

Since October, RBI has reduced repo rate by 250 basis points and the reserve repo rate by 100 basis points to 6.5 per cent and 5 per cent, respectively, signalling a soft interest rate regime.