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RBI to play part in demand management: Reddy

RBI to play part in demand management: Reddy
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First Published: Mon, Jun 23 2008. 04 43 PM IST
Updated: Mon, Jun 23 2008. 04 43 PM IST
Pune: The Reserve bank of India (RBI) will play its part in moderating and managing demand and may have to build on actions it has already taken to battle price pressures, its governor said on Monday.
India’s headline inflation rate hit a 13-year high of 11.05% in early June, raising expectations of further action from the RBI to tame prices.
“We are currently in the midst of intensive examination of issues and options,” RBI Governor Yaga Venugopal Reddy said at a function here.
“We in the RBI expected some pressure on prices due to pass-through of oil prices and have been taking pre-emptive measures in general in view of lagged effects of such measures on the economy.”
The central bank made a surprise 25-basis-point increase in its repo rate, the key lending rate, to 8.0% on 11 June, the first rate rise in more than a year.
In the year up to that increase, the RBI used banks’ reserve requirements to reduce excess cash in the system. The cash reserve ratio (CRR) stands at 8.25% after three increases in April and May.
Reddy said he did not see any adverse impact of inflation on growth as of now.
“We, on the basis of current information, don’t come to the conclusion managing this problem will necessarily involve sacrificing growth.
“As of now, we don’t see any reason to jump to the conclusion that growth will be adversely affected,” he said.
The central bank expects the economy to grow 8-8.5% in the current fiscal year that ends in March 2009, but some analysts say growth could moderate due to tight monetary policy aimed at calming price pressures.
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First Published: Mon, Jun 23 2008. 04 43 PM IST