By IANS
Mumbai : Focusing mainly on keeping headline inflation close to 5 percent, the Reserve Bank of India (RBI) Tuesday left key rates unchanged and projected a growth of 8.5 percent for the economy during the current fiscal.
“The policy endeavour would be to contain inflation close to 5 percent in 2007-08 while conditioning expectations in the range of 4-4.5 percent,” the central bank said in its quarterly review of the central bank’s current monetary policy.
“Indications are getting stronger of upside inflationary risks in the period ahead. Overall, inflationary pressures have firmed up with implications for the outlook for 2008,” RBI Governor V. Venugopal Reddy said.
The benchmark bank rate, the reverse repo rate, the repo rate and cash reserve ratio (CRR) have all been left untouched, the central bank said, and added that management of liquidity will assume priority in the conduct of monetary policy.
“Over the period ahead, liquidity management will continue to assume priority in the conduct of monetary policy,” the governor said.
Repo rate denotes the discount at which the central bank repurchases government securities from commercial banks to inject liquidity in the system and reverse repo rate signifies the rate at which it absorbs liquidity from banks.
While the bank rate is currently pegged at 6 percent, the reverse repo rate and the repo rate have been notified at 6 percent and 7.75 percent respectively. The cash reserve ratio stands at 7.5 percent.
The RBI governor conducted the quarterly review of the monetary and credit policy, which was keenly waited by not only the Indian industry but also equities traders.
Reddy said the thrust of Tuesday’s review was to reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring that the environment of interest rates are conducive to maintaining the growth momentum.
On economic growth, however, the governor had a cautionary note. “The business confidence surveys conducted by other agencies convey a mixed, though overall positive, picture for the near future,” he said.
“The moderation in growth expectations is reflected in anticipation of some deceleration in production and order books growth,” he added.
“The immediate task for public policy in India is to manage possible financial contagion that seems to have highly uncertain prospects of being resolved soon,” Reddy said.
“Accordingly, monetary policy has to be vigilant and proactive in cushioning the real economy from excess volatility in financial markets while recognising that India cannot be totally immune to global developments.”
Referring to the developments in the international financial markets, the RBI governor said these presented issues that needed to be monitored carefully in the context of the implications for emerging market economies like India.
“The setting of monetary policy in India has been rendered complex,” he said.
While economic fundamentals for the country remained strong, the need also arose for heightened vigilance with an emphasis on the readiness to take timely and prompt action to mitigate the risks to the extent possible.