Glimpse of Speech @ Shri Dr. D. Subbarao sir, RBI Governor @ AMA @ yesterday (30.05.

13):
------------------------Indias central bank governor warned of upside risks to inflation and expressed worry over
the countrys high current account deficit on Thursday, denting hopes for rate cuts and
sending bond yields to a two-week high and the rupee to a 10-month low.
Reserve Bank of India (RBI) governor D.Subbarao said the current account deficit, which hit a
record high 6.7% of gross domestic product (GDP) in the December quarter on heavy oil and
gold imports, would be a key factor in monetary policy decisions.
The RBI has cut policy interest rates by 25 basis points (bps) at each of its three reviews in
2013. Investors and analysts generally expect another cut at its next review, on 17 June.
Growth is significantly moderated, inflation is somewhat off its peak but there are several
upside risk factors, the balance of payments is under stress and investments have to pick
up, Subbarao said during a speech in Ahmedabad.
Subbarao said that the bad loan situation at lenders was disturbing.
However, he added, that it would not have a major impact on Basel III rules for capital
adequacy.
The central bank governor said that soft global commodity prices cannot be taken for
granted.
Annual consumer price inflation slowed to 9.39% in April, but was still significantly higher
than the wholesale price index inflation at 4.89%.
On Friday, India is expected to report that its economy grew at 4.8% in the quarter that
ended in March, bringing full fiscal year growth to about 5%, the worst in a decade.
Indias benchmark 10-year bond yield closed 5 bps higher at 7.44% after rising to 7.45%, its
highest since 16 May, following Subbaraos comments late in the session. The rupee closed
at 56.38/39 per dollar after hitting 56.39, its weakest since 25 July, 2012, and 0.4% lower
compared to 56.17/18 on Wednesday.
The bond market gave up gains as now it feels that the pace of rate cuts will not be as
much as it had anticipated earlier, said N.S. Venkatesh, treasurer at IDBI Bank in Mumbai.
Weakening commodity prices had bolstered hopes of easing pressure both on the current
account deficit and inflation, although Subbarao warned against complacency.
Global prices, especially commodity prices, certainly softened in the last few months. But
we cannot take the soft prices for granted, Subbarao said.
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