New Delhi: Having revised short-term lending rates at regular intervals in the past few months, the Reserve Bank of India (RBI), shares the concerns of the International Monetary Fund (IMF) on the impact of capital flows and remains worried over continuing inflationary expectations.
Concerns raised by RBI governor Y.Venugopal Reddy in his interaction with industry and financial market representatives ahead of monetary policy review are similar to a warning sounded by the IMF against the “volatility shock” in the emerging markets.
The inflation rate which averaged 5.3% in 2006-07 “may become 7%”, Reddy said.
Assocham secretary general D.S. Rawat said the governor’s biggest concern was inflationary expectations.
The RBI governor said India, being an important emerging market, has become a favoured destination for the capital flows from the developed world and “it is a big challenge for us”.
IMF echoed similar views in its Global Financial Stability Report. It warned investors against a “volatility shock”.
“Although emerging market fundamentals continue to improve overall, rapid capital flows into some emerging market countries could pose challenges for financial stability,” IMF said.