UPDATE 1-India cbank chief: too early to act on inflation f

Aug 14 2009 3:47PM

* Price pressures could build up down the line

* Agriculture situation is disturbing

(Adds detail, quotes, background)

By Saikat Chatterjee

HYDERABAD, India, Aug 14 (Reuters) - The outlook for farm output in India is a concern and price pressures could build up at some stage but it is too early to take action on inflation, the central bank chief said on Friday.

"The agriculture situation is disturbing, there would be pressure on food prices," Reserve Bank of India Governor Duvvuri Subbarao told reporters.

"We are monitoring the situation and will take appropriate action but it is still too early to be concerned about inflationary pressures," he said.

Although the widely watched wholesale price index fell an annual 1.74 percent at the start of August, its ninth straight drop, prices of food items have been rising on a weekly basis.

In its July review, the central bank revised its inflation forecast to around 5 percent by the end of March 2010 from 4 percent projected earlier.

Poor rainfall are expected to affect farm output and put upward pressure on inflation.

"You have to be sensitive to inflation. It is still too early to be taking action on inflation," Subbarao said.

Monsoon rains were 56 percent below normal over the past week, government data showed on Thursday, painting an increasingly grim picture for the farm sector and fuelling talk of a full-blown drought. [ID:nBNG434518]

Since the start of the four-month monsoon season on June 1, rains are 29 percent below normal, denting agriculture outlook and threatening to slow a burgeoning economic recovery and sending food prices 10 percent higher during the week ended Aug. 1 from a year earlier. "I am unable to say how the drought situation will translate into crisis and what action will have to be taken at what point of time," Subbarao said.