Subir Gokarn hints at interest rate cuts ahead of RBI review
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Subir Gokarn hints at interest rate cut

Subir Gokarn, Reserve Bank of India (RBI) deputy governor, has said below trend growth and falling crude oil prices offer RBI a window to ease policy stance.

 PTI   
  • Mumbai,  June 4, 2012  
  • |  
  • UPDATED   14:49 IST

Subir Gokarn, Reserve Bank of India (RBI) deputy governor, has hinted at a rate cut in the upcoming policy review of the central bank, saying below trend growth and falling crude oil prices offer RBI a window to ease policy stance.

"(For one,) the growth is somewhat lower than expectations and that may have positive, moderating impact on core inflation. Two, oil prices have come off somewhat more than expected. Those are the two factors that suggest more room (for monetary policy)," Gokarn told reporters on the sidelines of an event in Mumbai.

The economic growth for the three months to March stood at 5.3 per cent, its lowest in nine years, leading to calls for some urgent measures to get it back to track and achieve the targeted 7.3 per cent.

For the financial year 2011-12, GDP growth came down to 6.5 per cent, lower than the 6.7 per cent recorded during the peak of the post-Lehman credit crisis and 8.4 per cent in FY11.

One of factors being blamed for the dip in growth is RBI's rate stance, which resulted in elevated interest rates for nearly 20 months as headline inflation continued to remain uncomfortable.

Preliminary indicators on the growth front, coupled with a fall in inflation, led the RBI to announce a surprising 0.50 per cent cut in its key rates in its annual policy announcement in April.

In the announcement, RBI had made it clear that its room for further cuts was very limited given the high current account and fiscal deficits. The mid-quarter policy announcement is scheduled for June 18.

Gokarn, however, pointed out that rising food inflation and depreciating rupee are the conflicting factors the RBI would consider while deciding on policy rates.