Sticky inflation did not leave any room to cut rates: Subbarao
Quotes

Sticky inflation did not leave any room to cut rates: Subbarao

Last Updated: Tuesday, July 31, 2012, 22:54
 
 Comment 0
 
Sticky inflation did not leave any room to cut rates: Subbarao
Mumbai: High prices did not give the RBI much room to cut rates even though moderation in economic growth suggested otherwise, Reserve Bank governor D Subbarao Tuesday said.

"The tension between growth and inflation has been a complex one to manage. Growth moderation suggested that we ease the monetary policy stance. But on the other hand, stickiness on inflation did not allow any room for such easing," Subbarao told reporters at the customary post-policy interaction.

In the first quarter review announced earlier in the day, the RBI retained the repo rate at 8 percent and the CRR at 4.75 percent, but chose to lower the SLR by one percent to 23 percent.

He said the RBI chose to cut the SLR (statutory liquidity ratio) rather than the CRR (cash reserve ratio) as it wants a shift in banks' portfolios from the government to the private sector.

Explaining the thinking at the Mint Road, Subbarao said: "Monetary policy action alone will not deliver the macro- economic stimulus that we want. (For growth,) there are certain things that need to be done. When those are resolved, we will adjust our monetary policy stance".

When asked about the possibility of a rate cut this calendar year, Subbarao said: "RBI will not go entirely by the inflation projection, it will go by a number of figures as well as how the risk factors might unfold".

On factors that can revive growth, Subbarao said: "Some tangible, credible action on fiscal deficit certainly would revive investment sentiment, but there are other things to be done as well."

On the decision to cut SLR, Subbarao said some banks are deficient on the SLR side and RBI chose the measure to provide selective liquidity.

Subbarao said the 1 percent SLR reduction will also help the banks divert credit to the retail sector and reduce exposure to high-cost deposits.

This would make more money available, "reduce the cost of credit and give it those who need the credit", he said.

RBI Deputy Governor Anand Sinha said considering the changes once banks migrate to the Basel-III norms, the apex bank is also thinking of coming out with a framework on the recognition of SLR holdings.

Meanwhile, Subbarao said deficient monsoon is an important risk factor to the inflation situation but that the outcome in current year will not be as bad as 2009 -- the year of drought.

Better management of the situation and higher buffer stocks available will help save the situation this year, he said.

RBI Deputy Governor Subir Gokarn, who is in-charge of the monetary policy, said given the low contribution of agriculture to GDP and the equal balance shared between the kharif (summer) and rabi (winter) crops, a monsoon shortfall will not impact growth much.

PTI



First Published: Tuesday, July 31, 2012, 22:54


Comments


comments powered by Disqus
Honda Mobilio MPV
Honda Mobilio MPV
BRICS Annual Summit 2014
BRICS Annual Summit 2014
Tata Zest Standout Features: In Pics
Tata Zest Standout Features: In Pics
New car launches in July
New car launches in July
Tata Zest first drive review: In pics
Tata Zest first drive review: In pics

Web Wrap
Contact Us : Privacy Policy : Legal Disclaimer
Copyright © Zee Media Corporation Ltd. All rights reserved