'RBI for nurturing policy for devp Indian mkts'

Mumbai, July 01: Reserve Bank of India (RBI) Governor Y V Reddy has emphasised the need for a ''nurturing policy'' for the development of Indian markets, especially money, forex and government assets.

A RBI press release was quoting Mr Reddy who spoke as a panelist at the AGM of the BIS in Switzerland yesterday.

''In emerging economies, there are complexities in parallel implementation of measures for both development and integration of domestic and external markets in the financial sector,''he said adding that in case of India, this involved putting in place appropriate policies, institutions and practices including efficient market infrastructure and robust payments and settlement systems.

Listing the implications of enhanced competition in the financial sector for monetary policy, Mr Reddy said that it has had a positive impact both on growth and price stability.

He also pointed to clear evidence of improved monetary transmission mechanisms, both through interest rate and credit channels.

''We as the monetary authority feel that increasingly competitive financial markets are playing enhanced feedback role in the financial system,'' he said.

The governor said that while competition in domestic markets has enhanced the effectiveness of the monetary policy, the increasing integration of the Indian financial sector with global markets was making the monetary policy transmission ''somewhat more complex than before''.

Speaking about core inflation, the RBI Governor said that in India,''we could not focus on core inflation in policy, especially because two major sources of supply shock, food and fuel, account for a large share of the index.'' ''In our case, pass-through of higher oil prices has been halting and not full. Thus, headline inflation in our country in a way understates the problem,'' he said.

There is a clear evidence of a permanent component in the oil price increase and hence the headline inflation maybe understated till that component is fully passed through, Mr Reddy said.

UNI