Low inflation provides room for policy rate cut: Gokarn

[The central bank has raised rates 13 times between March 2010 and October 2011 in a bid to rein in inflation. It did have some effect, but the inflation does not seem to cow down with this kind of hackneyed and un-innovative prescription. Now the question is should good economics always be sacrificed at the altar of bad politics, as far as India is concerned? Well, in India, populism appears to be trumping simple economics again and again. The fact of the matter is that India remains a capital starved, infrastructure, energy and power deficit nation which does not have the wherewithal to generate enough capital to pump prime its myriad requirements. On the verge of becoming a 2 trillion dollar economy, its structural inadequacies lie exposed. Not that the door to opportunity does not lie ajar. The Indian economy needs gumption reforms and bold measures to bring it back to the growth path. The current UPA regime inherited a wonderful economy from its predecessor, the NDA, who increased the value of India's BRAND EQUITY, through lot of measures including, the much talked about "India Shinning Campaign". But the Muslims and Christians, due to "Narendra Modi Effect" and due to communal riots in Kandamal, Odisa, did not vote the NDA regime in full steam, leading to the coming to the power of this vicious conglomerate, an unholy power hungry alliance of vices, headed by a FM; who curved a name for  himself almost 21 years back during the Dr.P V Narshima Rao regime. The same Manmohan Singh who heads the government at the Centre took a series of bold, innovative and even dramatic decisions 21 years ago as finance minister---the veterans would remember correctly. Now again the question is: were the majority of those pragmatic measures taken during that time was the brain child of the current blind Prime Minister, Dr.Manmohan Singh or then Prime Minister Dr.P V Narasimha Rao's? From the functioning of the current UPA regime under the aegis of the Dr.Singh it seems, the reality is different. "The Brand, Dr.Manmohan Singh", as a respected economist and a brilliant student, who was the harbinger of change and in many ways the poster boy of a new India is on the wane. Dr.Singh as a Prime Minister is a disaster like his earlier boss, Dr.Pranab Mukherjee, who has now worn his hat as a FM. We also have one of the worst RBI team in place which is nothing but the rubber stamp of the populist UPA regime (read FMO). Under the current FMO and the RBI team the popularity of the Indian Capital Markets has hit Nadir, and it continues to remain, as one of the worst performing markets in the world. But this has hardly, rang the ear-drums of the current UPA regime. In such a circumstance, expecting anything from the government would be like filling a 10000 litre water tank with a 10 c c bottle].

Ahead of its annual monetary policy, the Reserve Bank today said cutting policy rate to promote investment depends upon moderation in inflation and fiscal consolidation.
"We need to have low inflation, we need to have rising investment ratio, we need to have strong fiscal consolidation and this in turn provides space for monetary policy to actually support investment ..." RBI Deputy Governor Subir Gokarn said at a summit here.
RBI is scheduled to announce annual monetary policy for 2012-13 on April 17. There is widespread expectation that the central bank may cut policy rate later this month to prop up growth and investment.
RBI has been following tight monetary policy stance since beginning of 2010 following spike in prices of commodity.
The central bank has raised rates 13 times between March 2010 and October 2011 in bid to rein in inflation.
Inflation rose to 6.95% in February, 2012 from 6.55% in January.
Since October 2011, the repo or the short-term lending rate of the RBI stands at 8.5%. Repo rate is the singnalling rate. Other policy rates like reverse repo and bank rate adjust automatically with change in the repo rate.
Last month, RBI slashed CRR (cash reserve ratio), the percentage of deposits that banks have to keep with the RBI, from 5.5% to 4.75%. With this, the central bank had infused Rs 48,000 crore into the economy.
This was the second reduction in the CRR since the January 24 policy announcement, when it had slashed CRR by 50 basis points releasing Rs 32,000 crore into the system.
Amid tight liquidity condition, bankers are expecting further cut in the CRR by the RBI.
"My personal stance is that cut CRR. Everything else follows. Lending rate will come down eventually. I would expect 75 basis point cut in CRR," SBI Chairman Pratip Chaudhuri had said after the pre-monetary policy consultation of Indian Banks' Association (IBA) with the Reserve Bank yesterday.
"We saw last year that growth was not very substantial. We have seen the overall interest rate scenario reigning high. So, perhaps some policy measures are required to ensure growth is also catered to without compromising on inflation," M D Mallya, IBA Chairman and CMD of Bank of Baroda said.
Mallya said overall liquidity is likely to improve after government spending starts.
About asset quality, Mallya had said things would improve for better as economy started picking up.

News-body, courtesy: The Business Standard (Additional Inputs: Suman Mukherjee)