Subbarao says more rate cuts if CAD, inflation go down

Jan 30 2013, 01:47 IST
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Summary"The main consideration for us to ease today was that growth had decelerated," said Subbarao

there, that was not deliberate," he said.

"The message we are trying to give is that as much as there is some space, its going to be limited and we are going to use it with a lot of judgement on both the timing and the quantum," Subbarao said.

Subbarao said that consumption, "the last bastion" in the growth story, has also started crumbling down. "But it will get revived only when people see their incomes going up and not through rate cuts", he added.

"The marginal propensity to consume out of a reduction in interest rate is lower than the marginal propensity to consume out of an increase in income," the governor said.

In the policy statement, the RBI nudged banks to grant more credit to the productive sectors on reservations from the small and medium enterprises and agriculture sectors, who are not given credit, he said.

Deputy Governor K C Chakrabarty said the large amount of restructuring, being witnessed by some banks, was a matter of concern but justified a cautious use of the instrument by lenders given the difficult economic climate.

On new bank licences, Subbarao said, "We are in the final lap", but declined to give any specific details.

"We consulted the government...They have made certain points to which we have responded and I don't know how many iterations it might go through but now we are awaiting the government's response to that. Both the government and Reserve Bank will want to launch this as soon as possible," he said.

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