D Subbarao non-committal on timing for cutting lending rates

MUMBAI: Reserve Bank Governor D Subbarao today said the reduction in cash reserve ratio (CRR) by the bank is a reversal in its policy stance but he did not indicate any timeline for cutting lending rates.

"In the Reserve Bank's view, the CRR is a monetary instrument with liquidity dimensions. It is a reversal of policy stance, but it is not a reversal of policy interest rates. On the policy stance, you could read this as a reversal," Subbarao told reporters after the policy announcement.

RBI has eased CRR, or the amount of deposits banks have to park with the RBI, by 0.5 percentage point to 5.5 per cent but chose to keep key short-term lending rates unchanged.

Subbarao, however, conceded that there would be some puritan thinkers who could consider this merely as a liquidity injection measure.

On the way ahead, the RBI Governor was non-committal as to when will the RBI start cutting rates.

"It is difficult to predict at this point of time the pace, timing and magnitude of the policy rate reduction... We would be very circumspect about how the rate cuts should roll out," he said.

In the policy document, RBI has said that based on the present inflation trajectory, it is premature to begin reducing the policy rate and it will happen only on "sustainable moderation" in inflation.

RBI, which has infused Rs 70,000 crore through open market operations, (buying back government securities and releasing liquidity in the system) will wait to see how the CRR cut works before taking a final call on continuing with the OMO, Subbarao said.

"Only if necessary, we may do an OMO or we may not do an OMO. But its too early to decide that," he said.

On the critical issue of growth, Subbarao clarified that the RBI's estimate of a 7 per cent expansion in GDP for the fiscal has a downward risk.

"There is downside risk to growth and that will arise from both domestic factors and external factors," he said, pointing out to challenges like inflation, credit pick up and investment activity.

In the policy document, RBI has stated that growth in FY'13 will be better than this fiscal. Deputy Governor, in-charge of monetary policy, Subir Gokarn said factors like inflation moderating on a cyclical basis and assumptions like normal monsoon led it to arrive at the conclusion.

RBI will do a detailed analysis on the growth issue and will come out with an estimate in the annual policy announcement scheduled for April 17, he said.