Mumbai: India’s inflation remains low and expectations appear to be consistent and stable, although global commodity, food and crude prices were high, said Rakesh Mohan, deputy governor of the Reserve Bank of India (RBI).
In a speech delivered at Yale University in the US on Monday, Mohan said RBI was on enhanced vigilance to respond appropriately to global uncertainties.
“We in the Reserve Bank of India are maintaining an enhanced vigilance to be able to respond appropriately to the prevailing heightened uncertainties in global financial conditions,” he said.
The transcript of Mohan’s speech was made available on Tuesday.
Mohan said the threshold of inflation tolerance in the economy has come down significantly and that the challenge for monetary policy was to reduce inflation in the medium term towards international levels.
Wholesale price inflation is hovering near a five-year low—just a tad bit more than 3% in mid-November.
The central bank broadly hopes to keep inflation close to 5% in the current fiscal year ending in March.
Inflation targeting may not be appropriate for India because sustaining growth is also an objective for the world’s second fastest growing major economy after China, Mohan said.
“Unlike many other developing countries, we have had a record of moderate inflation, with double-digit inflation being the exception, and which is largely socially unacceptable,” he added.
The government has not raised state-set fuel prices for nearly one-and-a-half years despite high crude prices.
India last revised prices of petrol and diesel in February, when they were cut.
India’s exposure to troubled US subprime assets and related derivatives was negligible in comparison with many other economies, Mohan said.
Maintaining financial stability has gained more importance as an objective of RBI’s policy in recent years because of an increasingly open economy, along with ensuring price stability and growth, he added.
V. Ramakrishnan and C.J. Kurrien contributed to this story.