RBI TO REVIEW RATES ONLY ON JAN 29TH

Thu Dec 31, 2009 4:50pm IST
HYDERABAD, India (Reuters) - The Reserve Bank of India (RBI) will review interest rates at its next policy review scheduled for Jan. 29 and not before, a deputy RBI governor said on Thursday.
"Wait for 29th. It can't be speculated. If it has to happen, it will happen on 29th. You will have to wait for that," said K.C. Chakrabarty, a deputy governor of the Reserve Bank of India, when asked whether and when the central bank would adjust rates.
India and South Korea are widely expected to be among the first Group of 20 nations to follow Australia and raise interest rates as they recover from the global slowdown.
Some economists expect inflation in India to reach 8 percent by the end of the fiscal year in March, above the RBI's comfort level.
The RBI can adjust monetary policy at any time, and has changed interest rates outside of its scheduled quarterly policy reviews on numerous occasions.
Of the six cuts in the repo rate between October 2008 and April, only the last reduction came at a policy review.
Chakrabarty became one of the four deputy RBI governors in June, although another deputy heads the central bank's monetary policy department.
Chakrabarty, speaking to reporters on the sidelines of an event in the southern city of Hyderabad, also said the RBI is not worried about yields on the 10-year government bond , which traded at 7.66 percent on Thursday and last week touched 7.75 percent, the highest since November 2008.
India is borrowing a record 4.51 trillion rupees ($97 billion) this year, and high rates add to the government's borrowing cost as it manages a fiscal deficit running at 6.8 percent of GDP, a 16-year high.
"Yields have not heated up that they need to cool down. Seven to 8 percent yield on 10-year is not uncomfortable, dangerous nor worrisome. It will go up and come down," said Chakrabarty.
Food price inflation rose to 19.83 percent in the year through Dec. 19, and while policymakers have expressed concern that high food prices could spur broader inflationary pressure, they also note that monetary policy is largely powerless to address supply-side shortages.
"Monetary tools are not always effective for everything. We have to find the cause. If the cause is due to monetary issue, then monetary policy will be effective," Chakrabarty said.
Credit growth in India, which reached nearly 30 percent in 2007, recently troughed below 10 percent in annual terms but is expected to climb in coming months. The economy is forecast to grow by roughly 7 percent in the fiscal year that ends in March.
Chakrabarty said it was "OK" for credit to grow at 12 percent when the economy was growing at 6 percent.
"If economic growth is 8-9 percent, it is okay to have credit growth of 17-18 percent. If it is below 12 percent, it will be worrisome," he said.
Chakrabarty expects bank credit to grow 15-20 percent in the current financial year. Bank credit grew an annual 11.8 percent on Dec. 18, according to RBI data.
(US$1=46.6 rupees)