Risks to current account deficit remain
The deputy governor observed that the government’s borrowing plan for the next fiscal year, starting in April, 2011, does not pose a challenge. “There will be no pressure in managing the government borrowing programme.'' Fiscal consolidation is moving in the “right direction,” and the borrowing plan doesn’t pose a challenge, Gokarn said, adding that the borrowing calendar for 2011-12 would be drawn up in March in consultation with the government.
Speaking on inflation, Gokarn said that the inflation outlook hasn't changed after the budget and that the budget recognises the structural nature of food inflation. In its quarterly monetary policy review in the last week of January, the RBI had raised its inflation projection to 7% from 5.5%. The RBI which has raised its key policy rate, the repo rate, benchmark repurchase rate seven times in the past year to 6.5%, signalled more increases on January, 25, 2011, as it urged the government to cut subsidies and tighten the fiscal policy alongside rising borrowing costs to defeat inflation.
Gokarn observed that, the liquidity situation in financial year 2012 will be less volatile. With the RBI encouraging liquidity to be just adequate banks have been resorting to borrowing from the central bank’s
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