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