Mumbai: Reserve Bank of India (RBI) governor D. Subbarao on Tuesday said inflation projections, especially beyond the next few months, could be “notoriously erroneous”. In October, RBI had projected 7% inflation by March, which it has reduced to 3% now. This is an “indication of the uncertainty we are in” and of the “intensity of the global recession”. Edited excerpts from his interaction with the media after presenting the quarterly policy to chiefs of banks:
We should not get an impression that we have conquered inflation once and for all. The inflation is coming down not because of structural reasons, but other factors over which we have no control.
On economic growth in 2009-10
I have said before that 2009-10 is going to be a more challenging year than 2008-09.
On banks’ reluctance to cut rates
The debate about transmission of the monetary policy signals to the banks’ lending and deposit rates has been a very active one in the last six months. There has been pressure from the media and analysts that RBI must reduce rates. There’s also been a lot of pressure on banks to reduce lending rates.
We have to recognize that banks have some constraints, such as the floor of the small savings and the high cost of deposit rates already raised. We...still believe there is room for downward adjustments in rates.
On banks’ exposure to Satyam Computer Services Ltd
We have done a review of banks’ exposure to Satyam and from regulation point of view, we haven’t seen major irregularities.
If the police investigation reveals any transgression by the banks, we will certainly take regulatory actions.
On audit firm Price Waterhouse
After the GTB (Global Trust Bank) episode, RBI had suspended PwC (PricewaterhouseCoopers) from bank audits in 2003. In 2007, PwC appealed to RBI to revoke the decision. Taking into account the duration of the time they had to remain suspended and considering the fact that the inquiry by the institute (Institute of Chartered Accountants of India) is still under way as we speak, we have revoked the suspension. And we will take a final view on the suspension once the final report by the investigation comes out.