Reserve Bank of India (RBI) Governor D Subbarao today addressed a press conference, where he, along with Deputy Governors Rakesh Mohan, V Leeladhar, Shyamala Gopinath and Usha Thorat, answered questions from the media. Excerpts from the press conference:
On inflation
D Subbarao: In October, we mentioned that the year-end number will be 7 per cent. Since then, there is a decrease in inflation. Inflation may be significantly lower than 7 per cent, though I am unable and unwilling to provide a number.
Rakesh Mohan: The immediate impact will be a 40-45 per cent decline in inflation because of the reduction in the crude oil price.
On GDP growth
Subbarao: The growth target put out in the October policy statement was 7.5-8 per cent, with a downside risk. The moderation in growth may be a little more than we had anticipated.
Rakesh Mohan: The global situation is extremely flux. The uncertainity continues and is affecting us domestically too.
On business confidence
Subbarao: Business confidence has been affected and corporate margins are dented. Yes, there is a downturn and the intent of the measures is to arrest the downturn and revive the growth momentum.
On banks not cutting lending rates
Subbarao: Monetary transmission takes time. Also, there are a number of other variables at play, not purely monetary transmission. There is an uncertain crisis, nobody really knows what is going to happen. There is admittedly some risk aversion. There is a tendency to maintain more than adequate liquidity.I am only hoping that today’s measures coming on top of the cuts we had done will send a positive and decisive signal to markets.
On high deposit rates restricting a cut in lending rates
Subbarao: There is some truth on cost of funds. During August, September and October, there was a high demand for credit. Therefore, banks had raised deposits at 10.5-11 per cent from retail depositors and even higher (rates) for bulk deposits. The weighted cost had increased and had inhibited a reduction in lending rates. The situation has changed (now). In the last two weeks, the credit demand has slackened. Now, banks will be urged or decrease lending rates through signalling.
On Statutory Liquidity Ratio
Subbarao: Our position on the SLR remains unchanged. We believe that the SLR requirement has stood the banking system in good strength at a time of crisis like this, though the reduction in SLR is a long-term goal, we are not immediately contemplating a substantial change in the SLR requirement.
On the role of reverse repo rate
Subbarao: For a long time, the reverse repo rate was not operational.... The operational rate was the repo rate, but since the beginning of November, the reverse repo rate has become material. And indeed it is true, we expect that banks will take a signal from the reverse repo rate and lend to the productive sectors.
On Cash Reserve Ratio
Subbarao: It is perhaps unfair to say that we have not used the CRR instrument. Since October 3, to the last cut ... we have reduced the CRR from 9 per cent to 5.5 per cent, so by 350 basis points, which I believe is significant in such a small time. We are closely and continuously monitoring the liquidity situation and the liquidity situation is not just comfortable, but it is more than comfortable. From the central bank, I want to say that we will endeavour to maintain comfortable liquidity. There are a number of measures to maintain liquidity and CRR is just one of them, and if we feel in our judgement that the CRR should be cut, then we will do that.
On liquidity
Subbarao: We believe that the liquidity is very comfortable now and I want to ensure the financial sector community that RBI will endeavour to maintain comfortable liquidity conditions using all the instruments available to us.
On delinquency
V Leeladhar: There is an increase in personal loans and credit cards, but it has not assumed serious proportions. We have come up with a restructuring process, which if used properly, can help avoid NPAs.
