RBI: Late rain will help rabi crops, tame food prices

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"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 per cent, citing persistently high inflation. It, however, cut the cash reserve ratio by 0.25 per cent to 4.50 per cent, 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".