Highlights: RBI chief's comments after first rate cut in nine months

MUMBAI Tue Jan 29, 2013 5:31pm IST

Reserve Bank of India (RBI) Governor Duvvuri Subbarao smiles during a business conference in New Delhi July 31, 2009. REUTERS/B Mathur/Files

Reserve Bank of India (RBI) Governor Duvvuri Subbarao smiles during a business conference in New Delhi July 31, 2009.

Credit: Reuters/B Mathur/Files

Related Topics

MUMBAI (Reuters) - The RBI lowered its key policy rate as expected for the first time in nine months to support an economy set for its slowest growth in a decade, but signalled there was less room for aggressive cuts in future due to concerns over inflation.

(For main story -- RBI cuts repo rate, CRR by 25 basis points, click here)

Following are Reserve Bank of India Governor Duvvuri Subbarao's comments in a press conference post policy announcement.

SUBBARAO ON:

FURTHER EASING

"If inflation eases further, by further I mean more than we expect it to and if current account deficit (CAD) moderates further, by further I mean more than we expect it to, because by fourth quarter (January-March) CAD might be less a challenge than in the third quarter, but it has to be significantly less and we have to have a sustainable CAD."

"So with inflation moderating and CAD moderating further there will be more room for monetary policy easing. But if we go along the currently expected lines the space for monetary easing is quite limited."

"The message that we are trying to give is that as much as there is some space, its going to be quite limited, and we are going to use it with a lot of judgement on timing and quantum."

LIQUIDITY

"We look at the liquidity situation, the causes for that liquidity situation and decide whether we to do a CRR or an OMO (open market operation). So, you should not read one way or the other on the CRR action about our decision on the OMOs."

"Yes, CRR is 4 percent now, and in theory it can go down to zero percent. Some central banks have tested those limits but as far as we are concerned we have quite a lot of cushion there. I am not suggesting that we will bring it down to zero or even below 4 percent. The question was about the room available to us - thats 4 percent."

CURRENT ACCOUNT, FISCAL DEFICIT

"I do not see fiscal deficit reduction as necessarily contractionary. Indeed, it might be growth enhancing."

"By far the biggest risk for inflation and for macroeconomic management is the current account deficit. Not just high current account deficit but high current account deficit in the context of slowing growth and high fiscal deficit."

"It is a problem because it has implications for financing the current account deficit, it has implications for our exchange rate stability and especially because it is happening in the context of slowing growth, our ability to attract capital can get affected if flows were stopping. And then in the context of large fiscal deficit there is a vicious cycle between large fiscal deficit feeding large current account deficit."

FORECASTS FROM POLICY REVIEW DOCUMENT

* Baseline GDP growth forecast for 2012/13 cut to 5.5 percent from 5.8 percent earlier.

* Baseline wholesale price index inflation projection for March 2013 cut to 6.8 percent from 7.5 percent.

* Cuts M3 projection to 13 percent from 14 percent earlier.

* Retains credit growth projection at 16 percent.

* Special coverage: RBI policy review, click here

(Compiled by Shamik Paul; Editing by G.Ram Mohan)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

COAL BLOCK ALLOCATIONS

REUTERS SHOWCASE

Financial Inclusion

Financial Inclusion

Modi to launch plan for every Indian household to have bank account .  Full Article 

E-Commerce

E-Commerce

Ratan Tata invests in online retailer Snapdeal.  Full Article 

Sugar Talk

Sugar Talk

Sugar export rebound at risk from rising domestic prices.  Full Article 

GDP Preview

GDP Preview

Economy likely grew faster in June quarter: Reuters poll.  Full Article 

New Ordeal

New Ordeal

After disasters, stricken Malaysia Airlines staff brace for job cuts.  Full Article 

Deal Talk

Deal Talk

Kleiner to invest in messaging startup Snapchat at near-$10 bln valuation - report.  Full Article 

Safety Net

Safety Net

SEBI revamps trading safety-net rules.  Full Article 

Expert Zone

Expert Zone

Column - Why inflation is so persistent.  Full Article 

Fraud Investigation

Fraud Investigation

IMF's Lagarde put under investigation in French fraud case.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage