Subbarao sees scope to cut rates in 2012

July 31st, 2012 - 6:17 pm ICT by IANS  

Mumbai, July 31 (IANS) Reserve Bank of India (RBI) Governor Duvvuri Subbarao Tuesday said persistent high inflation did not allow the central bank to cut interest rates immediately but there was scope for their being lowered in the 2012 calendar year.

“Well I see scope. But I can’t say when,” Subbarao told reporters when asked whether there was any scope of cutting rates in the current calender year.

In the first quarter review of the monetary policy, the RBI kept key policy rates unchanged for the second time since June saying lowering of rates would aggravate inflationary pressure.

Repo rate, the rate at which the RBI lends to commercial banks, remains unchanged at 8 percent, while the reverse repo rate, the rate at which RBI borrows money from commercial banks, stays steady at 7 percent.

Subbarao said inflation stickiness did not allow the central bank to cut the rates.

Core inflation was recorded at 7.25 percent in June as per the latest available data. The real worry is on food inflation, which remains in double-digit. Food inflation accelerated to 10.81 percent in June as compared to 10.74 percent in the previous month.

On economic growth, Subbarao said growth has slowed due to several factors and monetary policy alone should not be blamed for it.

“There are several factors responsible for growth slowdown, the monetary policy stance is only one of them,” Subbarao said at a press conference after the central bank announced the monetary policy review.

The RBI Governor claimed that there was no liquidity problem in the system.

“Real interest rates continue to be lower than what it was in the pre-crisis period,” he said.

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