........... Early last week, RBI deputy governor Subir Gokarn rekindled the hope when he said that the central bank has some elbow room to reduce policy rates following a moderation in core inflation and drop in global oil prices. Liquidity in the banking system is in “comfort zone” as of now, said Gokarn, citing a recent drop in banks’ daily borrowings from RBI and steady, overnight cash rate. According to Gokarn, lower-than-expected economic growth will have some bearing on the central bank’s projection of GDP growth for 2012-13. The stock markets moved up, factoring in a 25-basis points rate cut. By the end of last week, things again turned upside down. KC Chakrabarty, RBI deputy governor, on Friday said inflation was the first priority for the central bank and that policy rates were not that high to restrict growth significantly, watering down the case for an interest rate cut. The stock markets witnessed some quick profit booking as confusion lingered in the market. Chakrabarty doesn’t believe that a drop in policy rates, even if it were as high as 200 basis points, would significantly help India Inc in reducing lending rates. He argued that adequate capacity is available right now to ramp up India’s manufacturing growth back to 8-9 per cent, from the present 2-3 per cent levels, before one could expect any massive investment in new capacities. Policymakers should refrain from sending out confusing signals........................
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