Inflation to ease; RBI likely to cut MSF rate: Assocham

NEW DELHI: Industry body Assocham today said the arrival of kharif crops and recent stability in the Rupee will help bring down inflation, and the Reserve Bank is likely to take this into account and reduce the MSF rate -- at which banks borrow from it -- in its upcoming policy review.

"The recent stability in rupee coupled with kharif output will ease sequential inflationary pressures going forward. This should prompt the RBI to continue on the path of monetary policy normalisation by reducing the MSF rate further," Assocham President Rana Kapoor said.

The Reserve Bank on October 7 reduced the marginal standing facility (MSF) rate to 9 per cent from 9.5 per cent to improve liquidity in the system.

This was the second reduction in the rate since the September 20 mid-quarter monetary policy review, when it was lowered to 9.5 per cent from 10.25 per cent.

Meanwhile, higher prices of onion and other vegetables and fruits pushed up inflation for the fourth straight month to 6.46 per cent in September from 6.1 per cent in August.

The RBI took steps in mid July, including raising the MSF rate by 2 per cent to 10.25 per cent, to tighten liquidity in an attempt to curb volatility in the rupee-dollar exchange rate. MSF allows banks to borrow money from the central bank at a higher rate when there is a significant liquidity crunch.

The Reserve Bank is scheduled to unveil its second quarter review of monetary policy on October 29.