Lower oil to ease inflation - RBI Deputy

The recent softening of prices for fuel will make the fight against inflation by global monetary authorities easier, Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said on Monday. "If this trend persists, it will provide substantial relief for global inflation management, particularly for large commodities importers," Gokarn told a think tank conference in Washington. He pointed to the recent drop in U.S. gasoline prices as a sign of the trend. India's ambassador to Washington, Meera Shankar, said at the conference that India welcomed actions by the United States and other Western oil consumers to release oil from their strategic reserves, saying it was helping to ease prices. Gokarn said a slowdown in growth due to the central bank's policy tightening actions should also help ease inflation, which has been stubbornly high in the 9 percent range. Earlier this month, India raised interest rates for the 10th time in just over a year, boosting the rate at which it lends to banks by 25 basis points to 7.5 percent. The RBI's baseline forecast anticipates India's annual growth rate slowing to around 8 percent, Gokarn said. This compares to about 8.5 percent for the 2010/11 fiscal year. "From the inflation management perspective, this is not an entirely undesirable outcome," he added. "If it results in a significant reduction in the inflation rate, it will represent a soft landing, which in turn opens up the opportunity for a reversal of the interest rate cycle." Nonetheless, Gokarn said, it is important to pay attention to evidence of household inflationary expectations that have risen with higher food prices. "Recent surveys have reinforced the perception that household expectations are moving up. Food prices play an important role in this process," he said. However, Gokarn noted that yields on 10-year government bonds have remained steady, suggesting that investors' expectations for inflation over this time horizon remain anchored

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