RBI Governor D Subbarao dashes hopes of another rate cut

Reserve Bank of India (RBI) Governor D Subbarao belied hopes of further rate cuts, saying there are upside risks to inflation and that the central bank's priority will be to contain the high current account deficit (CAD).

Noting that retail inflation is "still high", Subbarao at an event on Thursday said even as growth is decelerating, inflation is not. "Global prices, especially commodity prices, certainly softened in the last few months. But we cannot take the soft prices for granted," he said.

While the wholesale price based inflation (WPI) fell to over three-year low of 4.89 per cent in April, retail inflation was high for the month at 9.39 per cent.

Economic growth fell to a decade low of 5 per cent in 2012-13 fiscal and is estimated to improve to 6.1-6.7 per cent in the current year.

"Growth is significantly moderated, inflation is somewhat off its peak but there are several upside risk factors, the balance of payments is under stress and investments have to pick up," Subbarao said.

He said high CAD is leading to the weakening of rupee.

"Rupee has depreciated more than compared to other economies... Large CAD is the biggest risk factor to the economy today," Subbarao said, adding that CAD for 2012-13 is likely to be close to 5 per cent.

Rising gold and oil imports pushed CAD to a record high of 6.7 per cent in the October-December quarter of 2012-13.

The central bank is scheduled to announce its mid-quarter policy review on June 17. In its last review, RBI had cut the key interest rates by 0.25 per cent.

With inputs from PTI