With the economic growth slipping to nine-year low levels, Reserve Bank Deputy Governor on Monday said below trend growth and falling crude oil prices offer the central bank a window to ease policy stance.

“(For one,) the growth is somewhat lower than expectations and that may have positive, moderating impact on core inflation. Two, oil prices have come off somewhat more than expected. Those are the two factors that suggest more room (for monetary policy),” Mr. Gokarn told reporters on the sidelines of an event here.

The economic growth for the three months to March stood at 5.3 per cent, its lowest in nine years, leading to calls for some urgent measures to get it back to track and achieve the targeted 7.3 per cent.

For the financial year 2011-12, GDP growth came down to 6.5 per cent, lower than the 6.7 percent recorded during the peak of the post-Lehman credit crisis and 8.4 per cent in FY11.

One of factors being blamed for the dip in growth is the Reserve Bank’s rate stance, which resulted in elevated interest rates for nearly 20 months as headline inflation continued to remain uncomfortable.

Preliminary indicators on the growth front, coupled with a fall in inflation, led the RBI to announce a surprising 0.50 per cent cut in its key rates in its annual policy announcement in April.

In the announcement, RBI had made it clear that its room for further cuts was very limited given the high current account and fiscal deficits. The mid-quarter policy announcement is scheduled for June 18.

Mr. Gokarn, however, pointed out that rising food inflation and depreciating rupee are the conflicting factors the RBI would consider while deciding on policy rates.


Now, Crisil lowers GDP growth to 6.5 % June 4, 2012

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