RBI ready with its armoury to curb inflationary expectations

New Delhi, Oct 31 (UNI) RBI Governor Y V Reddy today said the Central Bank would deploy various monetary policy instruments to curb inflationary expectations and denied that the economy was "overheated".

"There are demand pressures in the economy emanating from the robust manufacturing growth and other sectors of the economy doing well. This will put pressure, particularly on the manufactured goods. The RBI will ensure that inflationary prices are kept under check", Dr Reddy said in a Video Conference on the Mid Term Review of Annual Policy Statement 2006-07.

The Video Press Conference linked Mumbai with Delhi, Kolkota and Ahmedabad.

Dr Reddy said prices of primary products have also been under pressure, but added that while there may be some seasonal correction in prices of food articles during the remaining part of the year, policy intervention was necessary in terms of active supply distribution through the Public Distribution System.

The credit policy has left its stance on inflation unchanged, pegging the annual rate of inflation between 5 to 5.5 per cent.

Dr Reddy explained that with the integration of the Indian economy with the global system, the international rate of inflation was also of great import.

Globally, he said, there were incipient pressures on prices of cereals, sugar and pulses. In addition to metals, crude prices have moderated but remain at "elevated levels with an unceratain outlook".

Dr Reddy said the Central Bank was constructing a survey on inflationary expectations, entailing the Consumer Price Index, the Wholesale Price Index and some other elements which comprise such expectations. Such an index was in practice in some countries, but the use of such an instrument in India was only at a rudimentary stage.

He noted that the Consumer Price Index was more relevant to a common man and agreed with a questionaire that it hovered around seven per cent, which was high.

"High levels of monetary expansion and the evolution of the liquidity situation need to be monitored for any signs of risks of inflation", he said.

Dr Reddy dismissed comments that the Indian economy was "overheated" with a projected growth rate of eight per cent for the current fiscal.

"There is no conclusive evidence of overheating," he remarked adding that it would be necessary to prepare for a slow down or even going faster if the situation warrants.

The reasons why the Central Bank Chief felt the Indian economy was not overeheated included the fact that there has been no fall in global output and produtivity of various sectors of the Indian economy was on the increase.

UNI GS PV HS1846