HYDERABAD - Reserve Bank of India (RBI) governor D. Subbarao Friday said the state of agriculture following poor rainfall was disturbing.

Subbarao said that RBI was monitoring the drought-like situation and its potential impact on inflation and it would take appropriate action.

“The agriculture situation is disturbing, there would be pressure on food prices but it is still too early to be concerned about inflationary pressures,” he told reporters on the sidelines of a panel discussion organised by RBI as part of its platinum jubilee celebrations.

“Currently there is a reason to be concerned about food prices. We are watching the situation and will continue to monitor it and take whatever action necessary but it is too early to take action regarding inflation. I feel that there is still hope for agriculture,” Subbarao said.

“I am unable to say how the drought-like situation will translate into crisis and what action will have to be taken at what point of time.”

Earlier, participating in a panel discussion on “challenges for the central banks”, Subbarao said rapid expansion of government borrowing was impeding the transmission of the monetary policy.

“Making monetary policy independent of fiscal policy is an important reform measure and in the current situation, resolving tension between monetary and fiscal policy is the first challenge faced by the central banks,” he said.

The RBI governor, however, argued there had been no policy decision had been taken about raising its level of borrowing.

He said the monetary policy became the first line of defence to combat credit crisis and the crisis called for a greater coordination between monetary and fiscal policies, not only in India but around the world.

According to Subbarao, the first challenge was to manage the coordination between monetary and fiscal policies and the second was defining the mandate of central banks and reforming the regulatory system.