Reserve Bank of India (RBI) Deputy Governor Subir Gokarn on Thursday ruled out any policy action before the central bank’s annual monetary statement in April.
“Please do not expect any action between now and next policy announcement unless there is a completely unanticipated event,” Gokarn told reporters on the sidelines of an event here.
Following his comments the most traded 10-year benchmark 6.35 per cent 2020 bond rose 17 paise to Rs 90.05 compared with Rs 89.88.
In January, the central bank had increased banks’ cash reserve ratio by 75 basis points to 5.75 per cent in two phases, while it left key policy rates unchanged.
Gokarn expects the government to stick to its estimate for fiscal deficit for the next financial year starting April.
“We have anticipated in our policy in January the government will live up to its earlier commitment of bringing down its fiscal deficit to 5.5 per cent. We will wait for further announcement, but we believe that is the most likely outcome,” he said.
The government plans to cut its fiscal deficit to 5.5 per cent of gross domestic product (GDP) in the next financial year from 6.8 per cent in the current financial year. By 2012, the government aims to bring down its fiscal deficit to 4 per cent of GDP.
Govt borrowing
Asked whether the government may conduct additional borrowing in the wake of uncertainty over the 3G spectrum auctions this fiscal, Gokarn said, “There is no new basis, there is no new information that we have as of now. Whatever calculations we’ve made in our January monetary policy, stands. I don’t see any reason for raising that question.” Gokarn said the RBI policy review in January took note of next year’s borrowing.
The government has already completed its gross borrowing of Rs 4.51 lakh crore for the current fiscal.
For the next financial year, RBI Governor D Subbarao had said the gross borrowing may be higher than this year’s.
Price situation
Commenting on the food price inflation, Gokarn said, it is likely to moderate by May-end if monsoon rainfall is normal.
Food prices have stayed high for the last many months on the back of poor southwest monsoon in 2009.
The southwest monsoon was 23 per cent below normal in 2009. “We don’t know what it (monsoon rainfall) is going to be. But, in the event of normal monsoon, the food inflation situation is expected to moderate towards the end of May,” Gokarn said.
Food articles inflation rate went up to 17.94 per cent in the week ended January 30 from 17.56 per cent a week ago.
The headline inflation rate based on the Wholesale Price Index climbed to a 13-month high of 7.31 per cent in December from 4.78 per cent in November.
Banks’ base rate
The new base rate introduced by the RBI on Wednesday is aimed at ensuring transparency to borrowers and ensuring smooth monetary policy transmission, Gokarn said.
Late Wednesday, the RBI proposed linking lending rates to banks’ cost of deposits through a “base rate system” that will replace the prevailing benchmark prime lending rate system (BPLR) from April 1.
The RBI issued a draft circular and said it proposes to ban lending below the base rate. Currently, about 70 per cent of banks’ loans are sub-PLR.
“The PLRs that banks were announcing and their benchmarks to customers was not really the prime lending rate. A significant portion of lending was below that. In a sense this violates the spirit of prime lending rate,” he said.
