Price stability most important, says RBI Deputy Governor

Price stability most important, says RBI Deputy Governor
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First Published: Wed, Mar 14 2007. 02 56 PM IST
Updated: Wed, Mar 14 2007. 02 56 PM IST
By Sam Nagarajan,Bloomberg
Mumbai: India’s central bank said price stability is its most important objective and it will act swiftly and take all steps to bring inflation down.
“We’ll take all possible monetary actions to maintain price stability and bring inflation down,” Reserve Bank of India Deputy Governor Rakesh Mohan said at an investor conference in Mumbai. “We’ll act swiftly in response to any situation. We’ll use all tools available to manage liquidity.”
Wholesale price inflation accelerated to 6.1% in the week through 24 February. It has been above the central bank’s forecast of 5% to 5.5% for the year through 31 March for twelve weeks.
Record growth in Asia’s fourth-biggest economy has fueled demand for loans and stoked money-supply growth. The economy may expand at 9.2 % in the fiscal year ending 31March, following a 9% gain last year, according to the government’s statistics office.
“Inflation in the last one year has been higher than what we’d have liked,” Mohan said. “Slowing inflation has been done with difficulty and we would keep it that way.”
RBI raised its overnight lending rate five times in a year and also raised the amount of cash lenders must set aside to cover deposits by a percentage point to curb money in the banking system.
Capital Flows
India’s bonds fell after Mohan’s comments spurred concern the central bank will increase debt sales to drain excess cash from lenders.
The yield on the benchmark 8.07 % note due January 2017 rose 1 basis point, or 0.01 percentage point, to 7.98 % at 12:25 p.m. in Mumbai, according to the RBI’s trading system.
Mohan said increasing capital flows in the world’s second- fastest growing major economy posed a challenge to the monetary authority in managing funds in the banking system. “There has to be reasonable degree of sterilization in order to maintain the monetary growth we would like to have,” Mohan said.
India’s foreign-exchange reserves climbed $14.5 billion in the four weeks through 2 March as investment from overseas rose. The central bank bought $7.8 billion of foreign currency in the three months through January, according to the latest data provided by the central bank.
International funds bought $8 billion more of Indian shares than they sold in 2006, after record net purchases of $10.7 billion in 2005, according to data from the Securities & Exchange Board of India.
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First Published: Wed, Mar 14 2007. 02 56 PM IST
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