Inflation might reduce in 2 months: RBI

Mumbai, Apr 29: Expressing confidence that inflation, hovering around 7 pc, will decline in two to three months, the Reserve Bank of India today further hiked the Cash Reserve Ratio by 0.25 per cent to 8.254 per cent and left other bank rates unchanged in the annual credit policy announced today.

Post announcement of the policy, RBI Governor Dr Yana Venugopala Reddy is bullish over the growth of the economy at eight to 8.5 per cent even as policy and other interventions, besides a good monsoon, fueling reduction in inflation, which the Apex bank expected to be around 5.5 per cent, and bring it further down to five per cent.

The policy statement triggered enthusiasm in the capital market which saw a 362.50 point increase in the sensitive index at 17.378.46 points. All Indicies, including banking, ended in a positive note.

On the economic growth, Dr Reddy said the sectoral aggregation of the growth prospects for the year indicated the country sustaining a eight per cent growth. Agriculture, in view of good monsoon, should see a three per cent growth with the services and the manufacturing sectors witnessing a 10 per cent and 8.5 per cent growth, he added.

Earlier, presenting the annual policy statement of the Central Bank in a meeting with the Chief Executives of major commercial banks, Dr Reddy said the thrust of the monetary policy was to ensure a monetary and interest rate environment that accorded high priority to price stability, well anchored inflation expectations and orderly conditions in financial market while being conducive to continuation of the growth momentum.

While maintaining the bank rate at six per cent and the repo and reverse repo rate at 7.75 per cent and six per cent respectively, he said the Reserve Bank has the flexibility to conduct repo/reverse repo auctions at a fixed rate or at variable rates as circumstances warrant.

On the CRR, Mr Reddy said the latest dose of increase would be given effect to from May 24. Already in an intervention on April 17, the RBI had enhanced the CRR by 50 basis points with the first increment of 0.25 per cent effected on April 26 to enhance CRR to 7.75 per cent. The second increase on May 10 would take the rate to eight per cent.

UNI