RBI on monsoon watch for policy review

Talking to reporters on sidelines of a seminar here,he said RBI cannot make judgements on the progress of monsoon and it would rely on the Meteorological Department for forecast.

For monsoon rains,the first two weeks of July are quite significant,he said.

“We are still in the early part of that period. So,we are watching,as everybody else is,to see what progress it is making… if there is a problem,we will take it into our consideration,” he said.

RBI is scheduled to announce its first quarter review of monetary policy 2012-13 on July 31.

Monsoon is considered lifeline of Indian economy as about 60 per cent of the country’s cultivable land is not irrigated.

In its mid quarter policy review on June 18,RBI had kept the interest rate unchanged citing inflationary concerns and worsening global situation,among other reasons.

The status-quo instance of RBI had evoked sharp reaction from India Inc which was expecting rate cut to boost growth.

According to IMD,India’s monsoon appeared set to march ahead this week,as weather conditions were favourable for advance of the seasonal rains into parts of Maharashtra,Gujarat and Madhya Pradesh.

On the current account deficit (CAD) which touched a record high of 4.2 per cent of GDP in 2011-12,Gokarn said,”The capital inflows are not matching (the expectations) and putting pressure on the rupee”.

Gokarn said if current account deficit (CAD) situation improves it will help stabilise the rupee.

“As it (CAD) corrects for whatever reasons,whether it is oil prices or exports picking up or imports going down,that will obviously have a reverse effect,which will help to stabilise the rupee,” he said.

Rupee is on downslide against dollar in for quite some time now and even breached the mark of 57.

Gokarn further said RBI is continuously focusing on maintaining liquidity conditions within the comfort zone.

“Whatever is causing liquidity stress,whether it is foreign exchange market or something else,we are focused on maintaining liquidity conditions within the comfort zone we have stated. And that will continue to be the benchmarks …” he said.

He,however said RBI’s Open Market Operations (OMOs) are not directly related with rupee movement.

“I do not think you directly co-relate the rupee movement with the OMOs. OMOs are being driven by judgements on liquidity conditions,” he added.

In its mid-quarter monetary policy review on June 18,RBI had said the OMOs have substantially eased liquidity conditions.

To further augment liquidity and encourage banks to increase credit flow to the export sector,RBI also raised the export refinance credit limit with to release about Rs 30,000 crore.