Reserve Bank of India (RBI) Deputy Governor Subir Gokarn on Tuesday said the downward trend in inflation is giving the central bank some room to shift the focus of its policy to growth. Time and again, RBI has said tackling high inflation remains its focus. “Now we are seeing the (inflation) trajectory starting to move down again, and that’s just giving us some visibility of, you know, moving more towards the growth side of the equation,” Gokarn told reporters on the sidelines of an event.
“That is the signal we gave when we gave our guidance in October and we reinforced that guidance in this mid-quarter review as well,” he said.
In its mid-quarter policy review on Tuesday, RBI left the repo rate, the cash reserve ratio and the statutory liquidity ratio unchanged.
The central bank, however, reiterated there is scope for loosening monetary policy in January-March.
Repeating comments made earlier in the day, Gokarn said RBI did not cut CRR, as the current tightness in liquidity was due to short-term factors.
“The current tightness (in liquidity) is largely due to government balances, and because we feel that that is not going to be a very persistent phenomenon, using a more sort of long-term measure like the CRR was not warranted,” he said.
Gokarn pointed out that the central bank was already conducting open market operations whenever liquidity conditions warranted such a move.
On Tuesday, RBI announced it would buy government bonds worth up to Rs 8,000 crore through open market operations on Friday. In the past two weeks, RBI bought gilts worth Rs 23,200 crore.
That liquidity is tight currently, and it is clear in banks’ heavy borrowings from the central bank’s repo auction under the liquidity adjustment facility.
“The current LAF number is really not a reflection of structural liquidity constraints in the system,” Gokarn said.
On Tuesday, banks’ borrowings from RBI’s repo window stood at Rs 1,52,000 crore, the highest level since March 29.