No aggressive rate cut, open market operations will continue: Gokarn

The Reserve Bank of India (RBI) is unlikely to cut rates aggressively even as economic growth appears to have slowed and inflation has started moderating.

“That sort of room for very aggressive and very rapid rate cuts simply does not exist in today’s situation. The behaviour of commodity prices is and remains a risk to our inflation and growth outlook. Let’s wait and watch and see how the situation stabilises,” RBI Deputy Governor Subir Gokarn told reporters on the sidelines of an event here on Friday.

With economic growth dwindling, the central bank had kept key policy rates unchanged for the second consecutive month in January 2012. However, it refrained from reducing the rates amid upside risks to inflation from global crude oil prices and the lingering impact of rupee depreciation.

RBI, however, had reduced the cash reserve ratio 50 basis points last month to inject Rs 32,000 crore primary liquidity in the system. Gokarn has hinted that RBI will continue with open market operations (OMOs) to ease liquidity tightness.

“The basic criterion that has driven our OMO actions from the time we began this cycle has been the extent of the liquidity deficit... So long as that (tight liquidity) pressure persists and it is not the result of some temporary shock, the OMO remains an instrument,” he said.

The deputy governor also clarified the banking regulator was not in a hurry to reverse the restrictions it imposed on the domestic foreign exchange market in mid-December to arrest depreciation of the rupee against the dollar.

“Clearly, there is going to be a situation where we feel they (the measures) are no longer necessary and we will take the situation back to where it was, or at least move back in that direction. In that sense, they are temporary,” he said.