Jalan Says Bank Rate Cut Option Open

The Reserve Bank of India governor Bimal Jalan retained the Monetary & Credit Policy option of lowering the Bank Rate by up to 50 basis points if required by the banking system.

"We have already reiterated in our April credit policy that we will keep our options open...that as and when required we could make a rate cut of up to 50 basis points," Jalan said.

He was replying to a question, on the sidelines of book release function, on whether a bank rate cut was being considered given the soft interest rate bias.

Replying to another question if the RBI was eyeing a target for the rupee against the dollar's overseas woes, Jalan replied in the negative.

"No, we have no target...we are very comfortable with the forex reserves position and we would like to ensure stability in the market and minimise volatility."

Jalan also said that the Indian economy would achieve the growth target of between 6 to 6.5 per cent despite a less-than-normal monsoon.

He said that the central bank was confident despite the south west monsoon being an almost a complete failure over north India, "we stick to our growth projections".

The south west monsoon was expected to be normal this year and help in reviving the flagging rural economy. Rainfall has on an average been deficient over 25 of the 36 meteorological sub-divisions according to officials of the meteorological department and could affect production of the kharif crop.

Jalan said the central bank was not targeting any specific exchange rate band and would continue with its market operations to ease volatility in the exchange rate market. He also expected no pressure on liquidity from the two unscheduled bond auctions that are slated on Wednesday.

"We already had announced when we issued the (gilts issuance) calendar that as and when the government borrowings are required we would go to the market," he said.

"We don't see any pressure on liquidity due to the unscheduled bond auctions." Jalan also said that he did not foresee any pressure on the markets due to the situation in Kashmir.

"We are comfortable both on the external reserves front and internally. So I don't see any pressure at all (from the Kashmir attacks)," Jalan said.

Indian financial markets fell early on Monday as investors feared tensions between the nuclear capable rivals could ratchet once again following the weekend killings in Jammu and Kashmir.

Jalan reiterated that the central bank would maintain a soft interest rate bias although he ruled out a cut in the short-term repo rate for now.