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Tuesday, Apr 01, 2008
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Tight monetary steps coming: RBI chief

Mumbai: Concerned over ballooning inflation, the Reserve Bank of India on Monday hinted at tight monetary measures in its credit policy to be released on April 29.

“Inflation is unacceptably high ... we are very, very concerned ... we are in full readiness to take appropriate action to contain inflation,” RBI Governor Y.V. Reddy said.

Inflation spiralled to 6.68 per cent, much beyond the RBI’s comfort level of five per cent, prompting Finance Minister P. Chidambaram to say the government would take all measures — monetary, fiscal and supply side — to combat it.

Attributing the sudden spurt in inflation to a large increase in prices, mainly of food, fuel and metals, the RBI Governor told reporters that some inflationary pressures were expected when the central bank reviewed its monetary policy in January.

“Inflation has [now] turned out to be well more than anticipated,” he said on the sidelines of a function here.

The RBI was “very concerned” at the impact of the recent spurt in prices and inflationary expectations, Dr. Reddy said. The government was already taking some measures on the supply-side. “This would help to contain inflation.”

While the RBI was in full readiness to take appropriate action, “any decision has to be taken carefully as the situation is extremely complicated,” he said. “The RBI is confident in terms of growth and stability. India will continue to be one of the best performing economies in the world in the months ahead.”

On liquidity management, Dr. Reddy said there were many instruments available to contain liquidity which “we will not hesitate to use.”

On credit derivatives, he said there were reports of dialogue over differences between select banks and corporates, and the apex bank also received communication from some corporates on the subject.

The RBI had issued comprehensive guidelines on derivatives some time ago.

“As long as [these] guidelines are followed in letter and in spirit, there will be no cause of dispute,” the RBI Governor said. — PTI

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