MUMBAI (Reuters) - The RBI cut its benchmark interest rate by 25 basis points on Friday for the third time since January, as expected, as growth slows and inflation ebbs, but said there is little room to ease monetary policy further, disappointing markets.
Following are highlights of comments made by Reserve Bank of India Governor Duvvuri Subbarao at a press meeting after the release of the monetary policy statement:
GOVERNOR SUBBARAO -
ON MORE EASING:
"Keeping in view the need to consolidate on inflation rates and the upside risks we have said that there is little space for further monetary easing. However, and this is important, if inflation recedes further and faster, if current account deficit moderates more than we factored in, if the upside risks become more benign, space should open up for further monetary policy easing and we would do that."
"But, according to the current assessment of the macro-economic outlook, space for further monetary policy easing is little."
"On liquidity, we've said that we will manage liquidity to reinforce monetary policy transmission. We recognise that even if we cut rates if liquidity is not comfortable, transmission will not take place. So, we remain committed to the objective of maintaining liquidity in the range of plus minus 1 percent of NDTL (net demand and time liabilities), using all instruments available to us."
ON INFLATION:
"What is not correct is that the only instrument available to us is the interest rates. We have other instruments. We've said that it is important to manage liquidity as well, in order for monetary transmission to take place, and if that takes place, growth will improve, and that itself should have some benign influence on inflation. So, to believe that the Reserve Bank's armoury is limited to the policy interest rates, I think, it is somewhat narrowing."
ON BANKS LOWERING LENDING RATES
"This doesn't depend only on the RBI. We can only do so much and we expect transmission to take place. Admittedly, some transmission has taken place, as we reported in the document, it's not 1 to 1. So, what we gathered from banks this morning is that transmission will take place in the next 3-6 months, it may not be as immediate as everyone expects it but it will certainly take place and it will be transmission of not just of the cut this morning but of the cumulative cuts... And as I said, we meet every six weeks, so we will take stock of the situation, and see what action we may have to take."
ON BANKS' CASH PILE:
"There is considerable amount of liquidity buffer with the banks, please note that. There is excess SLR (Statutory Liquidity Ratio) of about 3.5 trillion rupees, there is unutilised export credit refinancing of about 210 billion rupees. And, the MSF (Marginal Standing Facility), which banks have accessed, that's about 1.4 trillion rupees. So there is 5 trillion rupees of liquidity that banks can access."
"Our understanding is that CRR (Cash Reserve ratio) is across board for all banks and please remember, if we cut CRR by 25 basis points, that's 170 billion rupees, not very much, whereas OMOs, as I gave you the number, that actually ran into trillions of rupees. So in terms of sheer volume and sheer value, OMOs have been much much larger. Also remember, OMOs are demand based. It helps those banks which have liquidity shortage, whereas CRR is across-the-board. And, if liquidity is a problem, I think OMOs are as good as CRR, if not better."
(Compiled by Neha Dasgupta; Editing by Jijo Jacob)
