RBI confident of containing inflation
On overheating of the economy, Reddy said that while presently there was no conclusive evidence of overheating
By PTI |
MUMBAI: RBI on Tuesday expressed confidence that inflation could be contained in the range of 5-5.5 per cent through a combination of monetary steps and government's initiatives on procurement and distribution of foodgrains.
Wholesale and consumer prices, however, "warrant continued special focus despite a decline in crude oil prices," RBI Governor Y V Reddy told reporters after releasing the mid-term review of its annual policy statement for this fiscal.
Since it was unclear how much further the oil prices would decline and that full pass-through had not yet taken place, there was a danger of incipient inflationary pressure building on prices of manufactures, he said.
"It is desirable to watch for incipient pressures building up on prices of manufactures with the quickening of domestic industrial activity and the elevated levels of international commodity prices," the RBI Governor said.
On overheating of the economy, Reddy said that while presently there was no conclusive evidence of overheating, prudence was called for to prevent such an occurrence and the RBI was constantly monitoring the economy for any signals of overheating.
"We must avoid the danger of running faster than we can," he cautioned.
Reddy said the consumer price index (CPI) was up at around 6 per cent plus as the prices of non-tradable had increased. According to him, globally central banks had mostly looked at core inflation while considering oil prices and ignoring headline inflation.
"The consumer price index (CPI) influences inflationary expectations more than wholesale price index," he said.
According to him, presently the country did not possess a timely and reliable CPI and the apex bank was now working on creating a RBI inflation expectation survey.
"A small beginning has been made but it was not adequate," he said.
On the hike in the repo rate from 7 per cent to 7.25 per cent, the RBI Governor said it was a signal to banks to re-balance their portfolio as liquidity would get expensive in case they come to RBI to borrow in the future.
"We expect the financial and corporate sectors to understand our signals and avoid contingencies of excess spill-over of demand pressure into a liquidity problem," he said.
Reddy also said RBI's action signaled that "we are willing to be more active in liquidity management."
On the spread between the repo and reverse repo rates, which was increased to 125 bps from 100 bps, that had been prevailing for over a year, Reddy said that previously (2002) the spread was at 250 bps.
"Raising the repo rate is only a signal that getting liquidity from the RBI will be expensive," he said, adding that the spread between the two rates has always been variable.
On capital account convertibility (CAC), Reddy said the steps outlined in today's annual policy review were in line with Tarapore Committee's recommendations.
"The steps we have taken are those which are in this year's timetable," he said.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
