RBI to use all instruments to maintain growth, price stability

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New Delhi, Nov 22 (UNI) Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan today said even though the Central bank actively intervenes in currency markets, the Rupee was largely market determined.

Addressing a business gathering here, Mr Mohan said the Central Bank was willing to use all monetary instruments available to maintain price stability and manage liquidity.

''We have a managed float, but we do intervene in the market actively,'' Mr Mohan said.

Stating that the subprime crisis in the United States was not over, Mr Mohan averred that India had only limited exposure to the crisis. It had brought to focus regulatory and policy issues.

''We are yet to see the end. There are really large losses and there has been a breakdown of risk assessment by credit rating agencies,'' Mr Mohan said.

India's exposure to the US mortgage market has been small, thus insulating its economy.

He said the RBI's objectives were price and financial stability, and keeping growth intact.

The various frequenty used instruments available to the Central Bank are Market Stabilisation Scheme (MSS), liquidity adjustment facility and Cash Reserve Ratio.

Mr Mohan said the RBI has yet to take a clear view on record capital flows that the country has received recently.

Overseas investors bought a record 18.6 billion dollars in stocks and bonds this year.

The Finance Ministry had imposed curbs on companies seeking to borrow from overseas and the Securities and Exchange Board of India (SEBI) on October 25 tightened rules on overseas investment in shares through Participatory Notes.

Mr Mohan noted that the Central Bank had succeeded in cooling down some sectors of the economy.

''We have followed an unorthodox approach in the conduct of the monetary policy,'' Mr Mohan said.

''We have been taking action on prudential norms for certain sectors that we felt have been overheating.'' Referring to inflation, Mr Mohan said the Food and Agriculture Organisation (FAO) has predicted that food prices would rise at a higher rate in the next fivr to 10 years than in the past, adversely impacting the price levels of those economies that have higher weight of these items.

On the impact of rising oil prices on the economy, Mr Mohan said the RBI will maintain its policy stance outlined in the mid-term monetary review.

UNI

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