New Delhi:
The impact of the El Nino weather phenomenon on the monsoon could have a bearing on inflation,the Reserve Bank of India said yesterday. It also said that a further dip in vegetable prices is not likely to take place. "Vegetable prices have entered their seasonal trough and its further softening is unlikely to happen...there are risks to the central forecast of 8 per cent CPI inflation by January 2015 stemming from a less-than-normal monsoon due to possible El Nino effects," said the RBI,in its first bi-monthly monetary policy statement for 2014-15, which left interest rates unchanged.
Wholesale price-based inflation eased to a nine-month low of 4.68 per cent in February, while retail inflation slowed to a 25-month low of 8.1 per cent. "Excluding food and fuel, however, retail inflation remained sticky at around 8 per cent. This suggests that some demand pressures are still at play,"added the RBI.
El Nino refers to the warmer-than-average sea surface temperatures in the central and eastern tropical Pacific Ocean. This condition occurs every 4 to12 years and had last hit India's monsoon in 2009,leading to the worst drought in almost four decades.
Other risks to inflation are uncertainty on minimum support prices for agricultural commodities and other administered prices, especially of fuel,fertilizer and electricity,the outlook for fiscal policy,geo-political developments and their impact on global commodity prices. "The Reserve Bank's policy stance will be firmly focused on keeping the economy on a dis-inflationary glide path that is intended to hit 8 per cent CPI inflation by January 2015 and 6 per cent by January 2016," it said.
It also said that at the current juncture,it is appropriate to hold the policy rate,while allowing rate increases undertaken during September2013 - January 2014 to work their way through the economy. "If inflation continues along the intended glide path,further policy tightening in the near term is not anticipated at this juncture," the RBI said.
RBI Governor, Raghuram Rajan, said that there is still uncertainty over the actual impact of El Nino on the June-September monsoon and on the agricultural output. "It's not a given that El Nino will happen and it's not a given that food production will plummet.If food production plummets,it is not a given that inflation across the board will be high...I don't think at this point we can anticipate precisely what will happen," Mr Rajan said.