RBI looking at ideal inflation rate of 3%: Reddy

RBI looking at ideal inflation rate of 3%: Reddy

New Delhi: With the price index slipping below 4%, inflation has ceased to be a matter of concern for the Reserve Bank of India, which has now started looking at an ideal rate of 3% in the medium term.

“We are not worried about inflation," RBI governor Y.V. Reddy said in an interview to the BBC on Sunday, adding the central bank is looking at a medium term objective of 4%-4.5% and ideally toward 3%.

Stating that inflationary expectations were quite benign now, he said, “We have to be concerned about the developments on the inflation front: that is our main responsibility."

Referring to the impact of recent interest rate cut by the US Federal Reserve, Reddy said it would be used as a “relevant input" into the ongoing analysis of economic and monetary developments.

RBI is slated to announce mid-term review of the annual credit and monetary policy on October 30. Some analysts expect the bank to relax the policy and cut interest rates after inflation fell to 3.32% for the week ended September 8, the lowest level since December 2002.

Pointing out that India is essentially a domestic economy-dominated system, he said, “Our major considerations relate to domestic developments. But naturally, since we’are increasingly getting integrated with the rest of the world, increasing weight is given to global developments, in particular developments in the United States."

Replying to questions on the impact of slowdown in the US economy, he said: “We are not likely to be significantly affected by any unwinding of these imbalances. So overall, therefore, I will say..., there will be some impact, but the impact is likely to be less than most other emerging market economies".