RBI sees inflation risks, limited room to ease policy

MOSCOW Sat Feb 16, 2013 5:09pm IST

Reserve Bank of India (RBI) Governor Duvvuri Subbarao attends the monetary policy review meeting in Mumbai January 24, 2012. REUTERS/Danish Siddiqui/Files

Reserve Bank of India (RBI) Governor Duvvuri Subbarao attends the monetary policy review meeting in Mumbai January 24, 2012.

Credit: Reuters/Danish Siddiqui/Files

Related Topics

MOSCOW (Reuters) - The Reserve Bank of India chief Duvvuri Subbarao struck a hawkish note on Saturday and said there are upside risks to inflation from food and commodity prices, while room for monetary easing is limited.

Headline inflation slowed to its lowest level in more than three years in January, but some analysts say the Reserve Bank of India (RBI) will watch the fiscal and current account gap and inflation risks before easing again.

"There are upside risks for inflation. In particular, food prices are going up as result of cyclical factors ... Then there is pressure on inflation from global commodity prices," Duvvuri Subbarao told reporters in Moscow.

The RBI cut its key policy rate for the first time in nine months in January, but struck a cautious note on further easing as it waits to see how the government's budget aims to bring a bloated fiscal deficit under control.

"At this moment there is room for monetary easing, but that room is limited ans we have to make a careful judgement on how to use that limited room," Subbarao said on the fringes of a meeting of Group of 20 finance ministers and central bankers.

India's high fiscal and current account deficits, in addition to inflation risks, are deterrents for further monetary easing, which is seen necessary to support sagging GDP growth.

The current account deficit widened to a record high of 5.4 percent of GDP in the September quarter, and Subbarao recently said it is likely to be at an all-time high in the fiscal year that ends in March.

In October, strained finances forced the Indian government to revise its fiscal deficit target for the fiscal year ending in March to 5.3 percent from 5.1 percent.

(Reporting by Katya Golubkova, Maya Dyakina and Shamik Paul; Editing by Douglas Busvine)

FILED UNDER:

REUTERS SHOWCASE

2015: India Outlook

2015: India Outlook

India in 2014: A dream run for markets  Full Article 

Funding Woes

Funding Woes

Co-founder of SpiceJet seeks time to finalise rescue  Full Article 

Regulating Airfares

Regulating Airfares

India considers temporary cap on airfares - government official  Full Article 

Flying Back on Course

Flying Back on Course

The inside story of the new Airbus A350 jet  Full Article 

Tracking Gold

Tracking Gold

Gold inches higher on weaker dollar, Asian buying  Full Article 

Cyber Attacks

Cyber Attacks

China condemns cyberattacks, but says no proof N.Korea hacked Sony  Full Article 

Connecting Markets

Connecting Markets

China stock connect scheme scorecard throws up surprises  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage