India's headline inflation is not easing as fast as the central bank would like it to and upside risk remains, said its deputy governor Subir Gokarn. However, he said the downside risk to growth is abating. “We are watching for signs of instability in overnight rates,” he informed adding, “There is no instability in the yield curve so far and call rates are clearly above rate corridor at the moment.”
Commenting on RBI’s recent SLR cut, Gokarn said the move will help reduce capitive demand for bonds. “Would like government to draw down on cash balances,” he stated. However, he also acknowledged that it will be difficult for the government to do ad hoc spending. Gokarn said government spending will be key to liquidity easing.
According to him the recent spike in onion prices due to demand-supply mismatch should be short-lived. “The onion price surge may not be factored in inflation calculation,” he divulged.
On the banking side, he said, banks have started raising deposit rates significantly. “There is mismatch between deposit and credit growth. This gap is widening.” He expects advance outgo to come into the system.
Gokarn also informed that the central bank will issue final norms on credit default swap (CDS) in the near future. “Currently, banks are not structured to meet long-term infra finance.”
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