Gokarn sees headline number at 7% by March; says CRR cut doesn?t rule out more OMOs
Inflation remains the top priority for the Reserve Bank of India and it will look at not just the headline inflation but also the risks to inflation going forward to take a call on policy rates, said deputy governor Subir Gokarn.
?Inflation is clearly the primary focus and we cannot ignore or undermine or underestimate the importance,? Gokarn told reporters on the sidelines of an event on Tuesday. Gokarn said that even though the hike in diesel prices will push up the headline inflation, it would dampen demand and fiscal deficit, and thereby could be a positive factor.
When asked what is the RBI?s outlook on inflation, the deputy governor reiterated that the central bank sees the headline number at 7.0% by end of March. ?We will review that number and change or not change depending on the circumstances in October,? Gokarn added.
Inflation was 7.55% in August, much above the RBI?s projection and is likely to go further up due to the fuel price hikes.
Gokarn said that the late revival in monsoon may have a positive impact on rabi output and thereby also impact inflation. However, some of the risks such as global commodity prices have also materialised, he said. Gokarn said that the cut in the cash reserve ratio was a pre-emptive move to avoid a big deficit in liquidity in the wake of the festival season wherein credit growth picks up.
There are seasonal factors and at the end of the day we do not want liquidity to constrain any sort of forces or tendencies for revival of economic activity,? he said.
However, the CRR cut does not rule out bond purchases through open market operations, he said. Bond yields had risen on Monday after the announcement of the CRR cut as traders felt it reduces the probability of bond purchases.
Gokarn also said that the central bank has assumed the government borrowing to be at the level indicated in the Union Budget which is R5,69,000 crore and has not considered extra borrowing.
At this point, since we don?t have a communication or statement about any extra borrowing, we don?t have any reason to change the assumption in our baseline scenario,? Gokarn said.
The government will borrow a little over R2,00,000 crore during October-March and RBI is likely to announce a calendar next week.
Gokarnspeak
* Inflation is clearly the primary focus and its importance cannot be undermined
* Late revival in monsoon may have a positive affect on rabi output and thereby inflation
* RBI assumes the government borrowing to be at the level indicated in the Union Budget
* CRR cut is a pre-emptive move to avoid a big deficit in liquidity in the festive season
