The Reserve Bank of India has some room to reduce policy rates following a moderate core inflation and soft global oil prices, a deputy governor said on Monday.
Subir Gokarn, RBI deputy governor, was speaking to CNBC-TV18 on the sidelines of a investor conference in Mumbai. Gokarn said the central bank is now waiting to see how it has impacted core inflation since weak growth would most certainly have impacted demand. The RBI, however, does not intend to change its forecast on gross domestic product (GDP) in its mid quarter review.
The RBI will have its mid-quarter review in about two week from now. Gokarn said the RBI’s action to rescue the rupee is limited to stabilising the exchange rate. Beyond that, it is a market play, he said. On measures to narrow down fiscal deficit, Gokarn said it was to be done by government policy actions.
Gokarn added that the lower-than-expected economic growth will have some bearing on the RBI’s projection of GDP growth for the 2012/13 fiscal year that began in April.
The 10-year benchmark bond yield fell to its lowest level in two-and-half months at 8.31 percent in early trade on expectations of a rate cut as early as this month. The Reserve Bank of India will announce its mid-quarter policy review on June 18.
India’s economic growth slumped to 5.3 percent — its lowest level in nine years — in the first three months of 2012 from a year earlier, marking a dramatic slide in the fortunes of a country whose economy was boasting nearly double-digit growth before the global recession.
He also mentioned that the liquidity in India’s banking system is in “comfort zone” as of now, citing a recent drop in banks’ daily borrowings from the RBI and steady overnight cash rate.
Gokarn also said the RBI has the option of buying bonds through open market operations if stress emerged on liquidity. Government bond yields nudged up slightly after his comments, as expectations for a reduction in the cash reserve ratio waned.
With inputs from Reuters