Inflation is still too high, says RBI Governor D Subbrao

Pune, Nov 16: Reserve Bank of India (RBI) Governor D Subbarao on Friday said the inflation rate is still too high, and suggested that the central bank is unlikely to loosen monetary conditions anytime soon to support faltering growth, despite a slight easing in prices last month.

Subbarao’s comments have come after data showed inflation rise by 7.45 percent in October, and unexpectedly dropping to its slowest pace in eight months.

Subbarao had previously said he expected price pressures to ease only in the first part of 2013, and had strongly indicated that any cut in interest rates would take place in January at the earliest.

The inflation data had raised hopes that the RBI would consider a December rate cut, but the 10-year bond yield rose by one basis point to 8.20 percent following Subbarao’s comments as investors pared back some of that optimism.

“We will look at all the data that has come and will come between our October policy review and first mid-quarter statement on December 18, then our next quarterly policy review on January 30, 2013. We will look at all the data, we will analyse it and take appropriate action,” Subbarao added.

The reserve bank has faced pressure from the government and industry to bring down the main policy rate from 8 percent, one of the highest in Asia, as the continent’s third-largest economy expands at its slowest pace in nearly a decade.

Subbarao also said the central bank is prepared to issue new bank licenses, but only if all the appropriate conditions are put in place, reiterating the RBI’s stance on allowing private companies to enter the sector.

The RBI has faced pressure from the government to start laying the groundwork towards issuing new banking licenses, but the central bank has stated it prefers to wait until the Banking Regulation Act is amended.

The amendment would give the central bank supervisory powers over the private companies that would enter the banking sector, but would need to be approved by parliament. (ANI)