Low growth, oil prices give RBI room to adjust interest rates: Gokarn

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Mumbai, June 4: Reserve Bank of India (RBI) Deputy Governor Dr. Subir Gokarn on Monday said the falling global oil prices as well as declining core inflation and growth in India give the country’s central bank room to adjust interest rates.

Dr. Gokarn also said liquidity in the Indian banking system was adequate after a recent drop in banks’ borrowings from the central bank, which gives it the option of buying bonds if tightness re-emerges, a remark which dampens market expectations for a reduction in the cash reserve ratio.

To a poser on whether there was more room to cut rates following weak growth numbers, Dr. Gokarn said there were two factors suggesting more room that would have positive impact on core inflation.

“I think the two factors that are suggesting more room – one, the growth is lower than expectation and that may have positive impact on core inflation, in moderating core inflation. Two, the oil prices have come off, some what more than expected. Even short while ago, I don’t think people saw this sharper a decline in oil prices coming,” he told media on the sidelines of a conference in Mumbai.

India’s economic growth slumped to 5.3 percent in the first three months of 2012 from a year earlier, its slowest in nine years, marking a dramatic slide in the fortunes of a country whose economy boasted nearly double-digit growth before the global financial crisis.

Dr. Gokarn further said high food prices, a weak rupee and a wide fiscal deficit continue to fuel inflationary pressure.

“There is fiscal pressure in the sense that the actions that were indicated that would bring the fiscal deficit to its budget numbers have not yet been taken,” he said. (ANI)