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RBI’s Gokarn hints at rate cuts

With the economic growth slipping to nine-year low levels, the Reserve Bank of India’s  [RBI] deputy governor on Monday said below trend growth and falling crude oil prices offer the central bank 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],’ Subir Gokarn said.

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 the 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, led the RBI to announce a surprising 0.50 per cent cut in its key rates in its annual policy announcement in April.

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