RBI hints at tightening of monetary policy

Mumbai, Sep 8: The Reserve Bank has said the lower inflation rates and impressive GDP growth, achieved in past four years, may not deter it from its tight monetary policy stand.

Addressing the Sveriges Riksbank of Sweden, RBI Governor Dr Y V Reddy yesterday asserted that the monetary policy would continue to be vigilant and pro-active to the global uncertainties that pose threat to the stability of the economy.

''While the stance of monetary policy would continue to reinforce the emphasis on price stability and well-anchored inflation expectations and thereby sustain the growth momentum, contextually, financial stability assumes greater importance at the current juncture'', said Dr Reddy.

Referring to key issues of price stability and asset prices, Reddy said growing improtance of assets and asset prices in a globally integrated economy has complicated the conduct of the monetary policy, which is focused on price stability issues.

The Regulator's comments on monetary policy is believed to be an indicator of the ensuing policy actions, which may even include a further hike in Cash Reserve Ratios (CRR).

RBI, in its annual report, had highlighted higher food prices as a provocative factor in pushing up the consumer price inflation.

''The domestic outlook continues to be favourable and would dominate the dynamic setting of the monetary policy in the period ahead. It is important to design monetary policy such that it promotes growth by contributing to the maintenance of financial and price stability.'', Dr Reddy said.

These apart, capital inflows, which have significantly grown to five percent of GDP in past fiscal from an average two percent in 2000-03 period, above the current account deficit, also remained as a matter of concern for RBI.

UNI