No incremental threat to inflation from latest monsoon forecast: Subir Gokarn

23 Jun 2011 Evaluate

Reserve Bank of India’s Deputy Governor Subir Gokarn has ruled out any incremental threat to inflation from the latest monsoon forecast saying one should consider the regional spread of the rainfall. He said, 'For the moment, going by the latest forecast I don’t think there is any reason to be concerned (about its impact on inflation).”

The deputy governor said the latest forecast suggests that monsoon will be 95% normal. The impact on inflation is really going to be a function of the regional spread of it. I think one element of the forecast was the Central region, which is a pulses and oil seeds zone, and there too it will be around 94%. Monsoon between 96-106% is considered as normal monsoon. 'So I don’t think if the forecast is accurate that poses much of a threat, he added.

Indicating that the collective forecast will be important, Subir Gokarn said, what is more important is the regional spread, but the regional forecast tends to be much more inaccurate, so one has to take that into consideration. He also said, there is comfort arising from the softening commodity prices and but pointed out that certain food items are still ruling high due to supply side pressures.

On the effectiveness of the monetary transmission measure taken by RBI, Gokarn said, there are comforting signals, as the wedge between credit and deposit growth has come down to under 5 per cent now, which was 9 per cent in March. As per the deputy governor, market volatility will not affect the current account deficit (CAD) and he said, as of now there is no threat to this, for FY11, the CAD is pegged at 2.5% of the gross domestic product.

On the uncertainty in the global economy, Subir Gokarn said, the resolution of the Greece situation will clearly reduce some of the uncertainty surrounding the state of the Euorzone economy. But the US is also showing signs of slowing down. It is not confined to Europe; it was what appears to be a broad-based weakening of whatever momentum we saw in the first quarter.

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