Kochi: The Reserve Bank of India’s (RBI) primary concern is maintaining price stability and inflation must be low and stable, its top official said on Tuesday.
The RBI raised interest rates last week at its policy review for the eighth time since last March, in line with expectations, and warned both of inflationary pressures and emerging risks to growth.
“Primary concern of any central bank including RBI is maintaining price stability...We are concerned about the rise in prices... Inflation must be low and stable,” Reserve Bank of India (RBI) governor Duvvuri Subbarao said in a speech in the southern city of Kochi.
The RBI in the policy review last week said it was likely to maintain an anti-inflationary bias, reinforcing market expectations that more rate increases are in the pipeline. It also raised its forecast for headline inflation at the end of March to 8%, from an earlier 7%.
The country’s wholesale price index (WPI) rose an annual 8.31% in February on higher fuel and manufactured product prices, well above the Reuters forecast of 7.79% and higher than January’s 8.23%.
Subbarao said the RBI prefers foreign direct investment (FDI) over short-term investment by offshore institutional investors (FIIs).
“We certainly prefer FDI ... By nature it is stable, it is a long-term position... in the economy. FIIs on the other hand, invest in equity or in debt and usually they take only a short-term position,” Subbarao said.
Foreign fund flows into equities have been tepid this year on concerns of sticky, elevated inflation and a huge current account deficit, although capital inflows have been picking up in March.
Foreign funds had sold Indian shares worth a net $825.95 million in February, while they bought a net $319.95 million this month until 20 March. So far in 2011 they have sold $1.89 billion of equity.
India’s current account deficit in the September quarter widened to a record high of $15.8 billion as booming domestic consumer demand sucked in imports and service sector exports suffered from weak global demand.
India’s FDI inflows have fallen sharply this financial year, as slow progress on opening up sectors like retail, insurance and infrastructure -- seen as key to sustaining rapid growth -- and a stumbling global recovery hit investor appetite.
In early March, finance minister Pranab Mukherjee said the government is in talks to further liberalise its FDI rules.
India is on track in the current fiscal year that ends in March to attract $27.6 billion in FDI, down from $35.6 billion in the previous year, a senior government official said last month.