RBI governor says monsoon outlook to determine policy actions in coming months

The Reserve Bank of India (RBI) has said its monetary actions in the coming months will be determined by the outlook on monsoon and ensuing impact on inflation.

The central bank in its last policy review lowered the short-term lending (repo) rate to 7.25 per cent from 7.50 per cent, lowest since May 2011, while retaining the cash reserve ratio (CRR) for banks unchanged at 4 per cent.

RBI Governor D Subbarao at an event in Hyderabad said: "...The Reserve Bank will keep a track of growth as it evolves, keep track of inflation as it evolves and keep track of aspirations and inspirations as it evolves... ... Most importantly we also chase monsoon like millions of farmers across the country. So, the monsoon outlook, the monsoon performance is going to be the important factor in determining the RBI policy in the next three months."

The RBI has reduced the key policy rate thrice by 0.25 per cent, each, so far in 2013 in its effort to boost growth which hit a decade low of 5 per cent in 2012-13.

The central bank is scheduled to unveil its first mid-quarter monetary policy review on June 17. There is pressure on RBI to cut policy rate in view of declining inflation and the urgency to boost sagging growth.
 
Although the headline inflation and core inflation has moderated below 5 per cent, food inflation still remains high.
 
Food inflation in April stood at 6.08 per cent, while the overall WPI inflation fell to a three-year low of 4.89 per cent. However, retail or consumer price index (CPI) inflation is at 9.39 per cent in April.
 
Noting that food inflation is still high, Finance Minister P Chidambaram had on Thursday expressed confidence that it will come down with the full harvest of rabi crops.
 
"Food inflation is still elevated but we hope that it will come down further as full Rabi crops arrive in the market," he had said.

Chidambaram highlighted that while the RBI has already cut the repo rate by 125 basis points since early 2012, the commercial banks have cut rates by only 30 basis points.

According to the Indian Meteorological Department (IMD) prediction, the monsoon is expected to be normal this year.

With inputs from PTI