RBI does its bit, cuts repo & CRR
As for further cuts in the policy rate, the governor made it clear this would depend on the inflation trajectory and the size of the current account deficit (CAD. Inflation, he said, would need to fall more than currently anticipated while the CAD would need to narrow significantly for any further monetary easing. There would be “limited space for easing”, he said, if inflation and the CAD came in on expected lines though he refrained from defining an acceptable level for the latter. Together with the quality of the widening CAD — which came in at a shockingly high 54.4% of GDP in Q2FY13 — Subbarao said there was also concern on the kind of flows that were financing the deficit.
The central bank, which has pared its inflation projection significantly for March 2013 to 6.8% from 7.5%, expects the price rise to gain some momentum next year before tapering off since the impact of the hike in diesel prices would kick in. Subbarao observed that while headline and core inflation had moderated, food inflation remained high and a concern. The governor said that the CRR had been trimmed since it was felt the system would