Monsoon to decide policy on interest rates: Duvvuri Subbarao, RBI

HYDERABAD: Reserve Bank of India governor Duvvuri Subbarao, who has warned that there is only limited room for interest rate cuts, said the monsoon will be the determining factor in further reductions.

"The monsoon outlook and monsoon performance is going to be an important factor in determining the RBI policy in the next three months," Subbarao told a conference in Hyderabad.

Monsoon rains remain a key factor in determining the price levels, especially agricultural commodity. If the prices of farm products rise, then it spirals into a broad-based inflationary trend restricting the central bank's ability lower interest rates. Mid-quarter review of monetary policy is due June. 17.

Inflation, as measured by the wholesale price index, has eased to multi-year lows following the economic slowdown raising hopes of a central bank rate cut. But the retail inflation affecting everyone is still high, though showing signs of cooling.

Defending RBI's tight monetary policy to rein in inflation, which was criticised by many as stifling the growth, Subbarao said he succeeded in reining in inflation to below 5% from high double digits.

"Growth has moderated but some sacrifice is the inevitable price to pay for managing inflation. That sacrifice is only for the short term. In the medium term, price stability and steady inflation are necessary precondition for sustainable growth," he said.