The Hindu : Business : Price stability is the main objective, says Y. V. Reddy

Online edition of India's National Newspaper
Saturday, Aug 28, 2004

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Price stability is the main objective, says Y. V. Reddy

By Our Special Correspondent

The Governor of the Reserve Bank of India, Y. V. Reddy (centre), flanked by the Chairman of the Securities and Exchange Board of India, G. N. Bajpai (left), and the Chairman of Insurance Regulatory and Development Authority, C. S. Rao, at the inaugural function of National Financial Switch in Hyderabad on Friday. - Photo: K. Ramesh Babu

HYDERABAD, AUG. 27. The Reserve Bank of India Governor, Y. Venugopal Reddy, said that the apex bank was `monitoring' the situation with regard to inflationary trends and demand and supply position and "steps and measures needed will be taken in a measured manner", adding "We all want price stability which is the most important objective".

Dr. Reddy's reference to inflation and the economy's strengths were made at the Institute for Development and Research in Banking Technology (IDRBT), where he along with G. N. Bajpai, Chairman of the Securities and Exchange Board of India (SEBI), and C. S. Rao, Chairman of Insurance Regulatory and Development Authority (IRDA), switched on the "National Financial Switch", which facilitates connectivity between banks' switches and their ATMs.

Imported inflation

Reviewing the current macro-economic situation, he said inflation was driven primarily by global forces rather than domestic. It was predominantly a supply shock. "We are monitoring the developments carefully and will respond on an ongoing basis for maintaining price stability", he reiterated. While conceding the international situation continued to be uncertain, he said domestic situation was `more positive'. There was no evidence of aggravation in demand but this has to be watched.

The truckers strike, he felt, should be treated as a `temporary supply disruption', and we need not fear this will have impact on the situation. "We are analysing policy response", on this issue also he said.

At the same time he drew the nation's attention to the many `positives' of the economy, and said due to policies initiated since the 1990s India had emerged "as an island of financial stability amidst a sea of turbulence". Inflation tolerance had come down and people were now reacting to inflation levels of 5 per cent and above. This was good, he felt. There was now national consensus that it was not good to have such inflation and action was called for wherever needed "without knee jerk reaction", he said. He had a meeting with financial institutions and bankers a few days ago and everyone felt that the need was on `minimising volatility'.

Investment is happening

India's exports were also going up, which made the situation `less uncomfortable' in the face of oil price hikes. Corporates were also realising the importance of the role of pricing. Investment was happening which implies output should grow. But long-term savings were rather low and was the cause for our not being able to invest more in infrastructure. But there was general agreement that the system should get used to some sort of `interest rate cycle'.

Dr. Reddy said Real Time Gross Settlement (RTGS) system was now implemented in 900 branches of various banks in 100 cities. Electronic funds flow was at 18 per cent this year against 10 per cent last year. The agenda for RBI was further expansion of RTGS reach and electronic funds transfer facilities in all other branches, and enhancing security levels of technology, he said. The RBI was also working on a `Vision document", and he expected it to be submitted to a multi-disciplinary group for their opinion.

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