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High interest rate hurting growth – RBI Deputy Governor

Admitting that high interest rate is hurting economy, the Reserve Bank said the country's growth rate is likely to moderate to 7.5 to 7.6% this fiscal.

Mr Subir Gokarn RBI Deputy Governor told reporters that "Since we had 7.7% in first quarter of 2011-12, we should expect that average for the remaining part of the year to be 7.5 to 7.6%. This is partly because we have been raising interest rates.”

The economy, he said, has been slowing down since the last (January to March) quarter of 2010-11 when it recorded a growth rate of 7.8%.

In its midyear monetary policy review last month, RBI had lowered the growth projections to 7.6% for 2011-12 from 8% estimated earlier. In the previous fiscal economy grew by 8.5%

The RBI Deputy Governor further said that slowdown in economy was impacting the overall investment scenario in the country.

Slowing investments was getting reflected in the index of industrial production which dipped to two year low of 1.9%

In the first half of the fiscal IIP grew by 5%, lower than 8.2% growth in the corresponding period last fiscal.

The Reserve bank has raise interest rates by 375 basis points since March, 2010 in its bid to tame inflation, which is still hovering around 10%

Inflation, Mr Gokarn said would start moderating from December onwards and dip below 7% in April, 2012. He added that "Downward trajectory of inflation begins in December and will continue... You can infer that it will come down below 7% in April.”