MOSCOW Feb 16 India's central bank chief struck
a hawkish note on Saturday and said there are upside risks to
inflation from food and commodity prices, while room for
monetary easing is limited.
Headline inflation slowed to its lowest level in more than
three years in January, but some analysts say the Reserve Bank
of India (RBI) will watch the fiscal and current account gap and
inflation risks before easing again.
"There are upside risks for inflation. In particular, food
prices are going up as result of cyclical factors ... Then there
is pressure on inflation from global commodity prices," Duvvuri
Subbarao told reporters in Moscow.
The RBI cut its key policy rate for the first time in nine
months in January, but struck a cautious note on further easing
as it waits to see how the government's budget aims to bring a
bloated fiscal deficit under control.
"At this moment there is room for monetary easing, but that
room is limited ans we have to make a careful judgement on how
to use that limited room," Subbarao said on the fringes of a
meeting of Group of 20 finance ministers and central bankers.
India's high fiscal and current account deficits, in
addition to inflation risks, are deterrents for further monetary
easing, which is seen necessary to support sagging GDP growth.
The current account deficit widened to a record high of 5.4
percent of GDP in the September quarter, and Subbarao recently
said it is likely to be at an all-time high in the fiscal year
that ends in March.
In October, strained finances forced the Indian government
to revise its fiscal deficit target for the fiscal year ending
in March to 5.3 percent from 5.1 percent.