RBI Guv doesn't see any shocks on suppressed inflation front
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RBI Guv doesn't see any shocks on suppressed inflation front

Last Updated: Wednesday, January 30, 2013, 21:54
 
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RBI Guv doesn't see any shocks on suppressed inflation front
Mumbai: A day after warning of more risks of price rise going forward due to suppressed inflation, Reserve Bank Governor D Subbarao Wednesday said he does not expect any negative surprises.

Addressing the analysts at the customary post-policy conference call, he said: "We have factored in the suppressed inflation part...But don't see any major (negative) surprises from there. Unless we don't see any major impact, the monetary policy will be consistent with the guidance..."

After a long gap of 9 months, RBI on Tuesday reduced the short-term lending rate by 0.25 percent and decided to release Rs 18,000 crore of primary liquidity, a move that would lead to moderation in home, auto and corporate loans.

RBI has for long favoured high interest rate regime so as to curb spending to tame inflation.

'Suppressed inflation' was a concern repeated many times in the Macro-economic and Monetary Developments Report released a day before the monetary policy announcement.

It affects the economy as many items such as oil are sold at subsidised rates. However, with the government deregulating diesel over a period of time, along with increase in electricity tariff by many states, some of the suppressed inflation is likely to be released into the system, putting pressure on the present inflation trajectory.

Subbarao also told analysts that the central bank is not drawing comfort from the fall of Wholesale Price Index-based inflation in the recent months and wants it to come down further to its comfort level.

He said the central bank has looked at all inflation indices like WPI, Consumer Price Index that shows retail inflation before taking policy actions.

The Governor maintained that the LAF deficit will continue as the central bank is trying to contain inflation. "Given that to combat inflation, we want the LAF in deficit mode. But, we don't want to keep it in an extreme deficit mode that monetary transmission does not take place.

"It's certain that as long as we are in an anti-inflationary stance, it will be in the deficit mode but within that plus, minus 1 percent of the NDTL (net demand and time liabilities)," Subbarao said.

Due to liquid deficit seen in the system, which was around Rs 1 lakh crore in the weeks, the RBI has reduced repo rate by 25 bps to keep it within its comfort zone of around Rs 60,000 crore or close to 1 percent of NDTL, at the monetary policy announcement yesterday.

Answering a query whether the liquidity adjustment facility (LAF) would turn surplus from the deficit mode now if the government spent all surplus cash balance lying with RBI, Executive Director Deepak Mohanty said it would not be the case as the tight liquidity scenario would continue for some more months.

As per reports, the cash balances held by the government with RBI are pegged at around Rs 90,000 crore.

Banks have been borrowing over Rs 1 lakh crore from the overnight counter of the RBI in the recent weeks.

PTI


First Published: Wednesday, January 30, 2013, 21:54


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