Mumbai: The Reserve Bank on Tuesday said the delay in monsoon rain will have some softening impact on the price index as it will help the winter crops, a day after it left the key interest rates unchanged citing the increasing upside risks to inflation.
"Late rains are typically good for the rabi (winter) crops. So there may be some softening going forward," RBI Deputy Governor Subir Gokarn, who is in-charge of the monetary policy management, told reporters here on the sidelines of an event.
Yesterday, RBI left the key short-term lending rate or repo unchanged at 8 percent, citing persistently high inflation. It, however, cut the cash reserve ratio by 0.25 percent to 4.50 percent, inducing an additional Rs 17,000 crore liquidity into the banking system.
Gokarn said inflation management remains the primary focus of the monetary authority. "Any decision we take cannot ignore or underestimate the importance of inflation. It has been the primary factor in our calculation all along and it will continue to be so."
When asked about risks to inflation, Gokarn said, "We see the same kind of risks which we saw earlier... but now we have a much better handle on the impact of whatever the monsoon performance has had on food prices. Earlier we had a risk, but we have some sense of its behaviour".
However, he warned that the impact of the good rains on the food prices may be offset by the rising crude prices in the wake of the QE3 and ECB easing, saying "oil is back in focus now with Brent hovering at USD 110-115 a barrel".
On the latest round of monetary easing by the US Fed, wherein it would buy USD 40 billion of government bonds till 2015, and the European Central Bank's move to purchase an unlimited amount of government bonds, he said, "We have always been worried about the impact of any global liquidity infusion on commodity prices".

On the rationale behind the CRR cut, Gokarn said, "We have not gone by the LAF (liquidity adjustment facility) borrowing or call rates this time around. We have taken a bit of forward looking view in view of the forthcoming festival season when liquidity can get a bit tight".
He linked the CRR cut to the spate of policy actions by the government, saying, "Consistent with what we do and looking at correction to some extent, we don't want liquidity to be a constraint to an extent that these actions would have an impact on economic activities. So, we felt it was justifiable to (cut CRR) rather than doing a series of OMOs latter on".
On open market operations (OMOs), he said "OMOs have always been very tactical in the situation when we feel that pressure might persist. It is not ruled out".
On diesel price hike and its impact on inflation, Gokarn said, "Mathematically, inflation will go up as diesel prices go up. But, there is benefit on fiscal side".
When sought his views on the impact of the reform steps on the rupee, he said the Indian currency, which has been getting battered since August last year, may strengthen if it responded positively to the recent policy actions.
The government last week put up a cap on subsidized cooking gas for domestic use and hiked diesel prices by a whopping 12 percent apart from allowing direct foreign investment in multi-brand retail and aviation.
On the government borrowing, wherein it has budgeted to borrow Rs 3.79 lakh crore in the first half of the fiscal from the market, Gokarn said, "The central bank has no formal communication about enhanced borrowing so far, so there is no reason for us to change our baseline assumption".


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