RBI says rates have peaked as inflation slows

New Delhi ; Interest rates in India have peaked, a deputy governor of the Reserve Bank of India said on Thursday, as data showed the food price index dropped for the first time in nearly six years.

Subir Gokarn, who handles monetary policy at the Reserve Bank of India, said economic growth concerns are back on "center stage," suggesting that the slowing economy was weighing more on the RBI’s mind as the inflation threat recedes.

"We are basically saying that the cycle has peaked. I don’t think in any of the governor’s statements or in our guidance, we have made any explicit mention of actually starting to bring rates down," Gokarn told television channel ET NOW after speaking at a conference in Singapore.

"That will depend on how the inflation momentum is playing out," he said.

The food price index fell in late December on an annual basis for the first time since April 2006, dragged down by a high statistical base effect and improved supply of crops such as pulses, vegetables and potatoes.

That has a triggered hopes that the headline inflation rate for December, due to be released next week, may come in below 9% for the first time in a year, which could make it easier for the central bank to relax its hawkish stance.

"I think what is being suggested by him (Gokarn) is that it is going to be data driven. It is not that he is saying RBI won’t cut rates. He is just saying it depends on the magnitude of the data points," said Shubhada Rao, chief economist at YES Bank in Mumbai.

The RBI will take cues from factory output data and the headline inflation number to decide on policy action at its review on Jan 24, but in terms of the policy stance, growth is clearly on the central bank’s radar, Rao said.