Inflation, liquidity condition influential: RBI

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Mumbai, July 28 (UNI) Inflation has emerged as a global phenomenon in recent months even as liquidity conditions continued to be influenced by movements in cash balances of the Central Government and capital flows, the Reserve Bank of India said.

In a statement on ''Macroeconomic and Monetary Developments: First Quarter Review 2008-09'', released today, ahead of first quarter review of the Annual monetary Policy, RBI said headline inflation firmed up further in major economies during the first quarter of 2008-09, reflecting the combined impact of higher food and fuel prices as well as strong demand conditions, especially in emerging markets.

Global commodity prices firmed up further during the first quarter of 2008-09, led by a sharp increase in the prices of crude oil as well as food and agricultural raw materials, RBI said.

Inflation based on the wholesale price index (WPI), increased from 7.7 per cent at end-March 2008 to 11.9 per cent by July 12, 2008, reflecting the impact of some pass-through of higher international crude oil prices to domestic prices as well as continued increase in the prices of iron and steel, it stated.

However, Indian financial markets remained largely orderly during the first quarter of 2008-09. Interest rates in the money market mostly remained within the informal corridor set by reverse repo and repo rates during the quarter. Interest rates in the collateralised segment of the money market remained below the call rate during the quarter.

In the foreign exchange market, the Indian rupee generally depreciated against major currencies during the first quarter of 2008-09. Yields in the Government securities market hardened during the quarter.

Indian equity markets recovered somewhat during April-May 2008, but declined thereafter in tandem with the trends in major international equity markets as well as edging up of domestic inflation.

Growth in broad money (M3), year-on-year basis, dropped at 20.5 per cent at Rs 7,04,046 crore on July 4, 2008 as compared with 21.8 per cent Rs. 6,17,118 crore a year ago.

Aggregate deposits of banks, y-o-y, declined at 20.7 per cent Rs 6,07,668 crore, on July 4, 2008 as compared with 23.1 per cent Rs 5,50,653 crore a year ago.

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