Interest rates still below normal levels: Richard Iley

ET Now caught up with Richard Iley, Chief Economist Asia, BNP Paribas, to find out his views on monetary policy review and interest rates.

You say in your latest research that the RBI is a willing accomplice to fiscal backsliding. If you see India money supply growth that has been trending down, how can you say that the RBI has been a willing accomplice?

Well, the monetary authority needs to some extent to be to near to please fiscal discipline and it was fascinating for me that earlier in this year the first policy review by the RBI. They signal that they needed to tighten monetary policy but they held back from former policy tightening to really give Finance Minister Mukherjee the opportunity to pretty conservative budget, so rather than pushing up policy rates in January, we got that bigger than expected increase in reserve requirements. We got a pretty least budget. Just stick in to 5.5% of GDP this year isn't much of an achievement given how strong the underlying economy is. The fact that average interest rates are now still well below normal levels we haven't seen much monetary policy retaliation subsequent to that budget two quarter point rates rises. So again when you look at the latest monetary policy review, the RBI is very clear that the need to support the very heavy level of government borrowing is one factor moderating the rate at which they prepare to increase interest rates.