Bangalore: The Reserve Bank of India (RBI) said that its rejection of some bids at its daily market operations was not a monetary policy signal. The bank also said that some sectors of the economy are showing tentative signs of recovery.
Earlier in May, the RBI rejected some bids at its reverse-repo auction for four consecutive days as banks sought to deposit around Rs1.5 trillion ($30 billion) with it.
“It’s not a monetary signal,” governor Duvvuri Subbarao said after a meeting of RBI’s board.
“At the moment we are not trying to signal anything by way of monetary measures by not accepting everything under reverse repo,” he said, adding that the bids were rejected for operational reasons.
Traders had thought the bids were knocked back because the central bank has a limited stock of bonds which it uses to swap with banks for cash. Since then cash levels have declined, with banks parking 1.34 trillion with the central bank on Thursday.
Subbarao said that the response of Indian authorities to the global credit crisis and economic slowdown had helped financial markets to function normally and also checked growth moderation.
Since October, the central bank has cut its key-lending rate by 425 basis points, and the government has slashed factory gate duties and service tax to protect growth and jobs.
“The most frequently asked question today is whether the worst is behind us. I wish I could precisely say when the economy will start to recover,” Subbarao said, adding: “The pace of decline in certain areas has, however, started to moderate with some sectors showing tentative signs of recovery. There are incipient signs of revival of business confidence.”
No crowding out
Recent data has shown some early signs of a recovery is taking shape with improved cement, auto and steel sales, but industrial output posted a sharp annual fall in March.
Subbarao said that the recovery signs needed to be more widespread across indicators and more durable to draw any clear inference on the timing and pace of recovery.
Prime Minister Manmohan Singh has said that the economy grew an estimated 6.5% in the just ended 2008-09 fiscal year, which would be its slowest in six years.
A survey by a leading industry lobby group showed improved business confidence for the first half of the 2009-10 fiscal year on hopes the economy would revive later in the year.
Subbarao said despite the government’s planned record gross market borrowing of Rs3.6 trillion in 2009-10, private sector firms would be able to raise any debt funding they needed.
“I want to say that there is enough money, that there is no question of government borrowing crowding out private sector borrowing,” he said.
Earlier, data showed that the widely watched wholesale price inflation eased in early May after rising for three straight weeks, and analysts they still expect the central bank to cut rates in the next three months.
The wholesale price index rose 0.48% in the 12 months to 2 May, below the previous week’s annual rise of 0.7% percent but marginally above a median forecast of 0.3% in a Reuters poll.