New Delhi: Endorsing the Reserve Bank of India’s (RBI) monetary policy stance, finance minister P. Chidambaram on Tuesday said he will discuss with the RBI governor what additional measures could be taken to contain capital flows.
“RBI governor will, I am sure, visit Delhi shortly and we will discuss what further policy actions need to be taken,” he told reporters, when asked about RBI governor Y.V. Reddy’s views that appropriate and decisive policy actions were required to manage capital flows consistent with macro fundamentals.
“We will discuss with the RBI,” Chidambaram added. “He (Reddy) has given only a statement.” The gap between interest rates in India and the US has indeed widened because of the cut announced by that country’s Federal Reserve, he said. However, there is no surety that capital flows would increase due to the US central bank’s move, Chidambaram said. On fear of a surge in capital flows due to the widening of interest rate differential between India and the US, the finance minister said, “We do not know what will happen yet. As I had said the cat can jump either way. There could be increased capital flows ... Let us wait and watch.”
Reddy has reinforced price stability and has emphasized credit delivery, particularly for employment-oriented sectors, Chidambaram added.
“(Reddy) has also resolved to monitor heightened global uncertainties and respond swiftly,” he said. “That approach, I think, is the correct approach to take when there are uncertainties in the international market. The policy should be interpreted where RBI has preserved itself the flexibility to move either way depending upon the emerging situation.”
On gross domestic product growth projection of 8.5% by RBI for the current fiscal, Chidambaram said, “There are also projections by the economic division and economic advisory council of Prime Minister as well.” Growth in money supply and aggregate deposits of scheduled commercial banks will still continue to be high, he added.