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RBI maintains vigil over asset price: Dr Rakesh Mohan

Written by: Staff

Mumbai, June 5 (UNI) The Reserve Bank of India (RBI) will maintain vigil over asset price rises, especially in housing and real estate, that are emerging as key areas of challenge, said its Deputy Governor Rakesh Mohan.

The apex bank was also watchful of consumer and business confidence, corporate performance, sizeable growth of reserve money and money supply, rising trade and current account deficits and the quality of credit growth, he said at the conference on Economic Policy in Asia at Stanford on Friday last.

''This risk sensitive approach has served us well in containing aggregate demand pressures and second round effects to an extent,'' Mr Mohan told the audience at the conference, which was organised by Stanford Center for International Development and Institute for Economic Policy Research at Stanford, USA.

''It has also ensured that constant vigil is maintained on threats to financial stability through a period when inflation was on the upturn and asset prices, especially in housing and real estate, are emerging as a challenge to monetary authorities worldwide.'' The Reserve Bank of India surprised markets in April by not raising the key short-term interest rate from 5.5 per cent when many expected a 25 basis points rise amid robust 8 per cent expansion, he said.

Leading up to the decision, it set a hawkish tone and warned that excessive increases in asset prices and credit had emerged as major challenges that could lead to financial instability, he said.

Loans by banks to the commercial sector had been growing at 30 per cent year-on-year, while money supply was expanding at an annualised 18 per cent, Mr Mohan pointed out.

When the policy rates had been raised, they were mainly aimed at reining inflation expectations amid pressures from high and volatile crude oil prices, he added.


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