The Hindu : Business : ‘Inflation will be brought in alignment with policy’

Online edition of India's National Newspaper
Tuesday, Jun 24, 2008
ePaper | Mobile/PDA Version

Business

Business

‘Inflation will be brought in alignment with policy’

Special Correspondent

RBI will continue to take calibrated measures, says Reddy

Macro policy will focus on fuel prices
Optimistic outlook on the food front

MUMBAI: The Reserve Bank of India (RBI) Governor Y. V. Reddy on Monday reiterated that it will continue to take determined and calibrated measures, as and when warranted, with a focus on managing expectations and on enabling adjustments in the economy in response to the oil shock.

“We are now in the midst of intensive examination of issues and options,” said Dr. Reddy on the sidelines of the 5th convocation function of National Institute of Bank Management (NIBM) in Pune. “There is a legitimate concern about the recent developments on the inflation front,” he added.

“Of the three shocks from the global economy, we are safe in regard to the financial sector and the outlook is optimistic on the food front. Therefore, as of now, fuel prices are the main, though a difficult, problem. The macro policy can, therefore, focus on this problem of fuel prices in the background of some strength in many other aspects,” he said.

“We are confident that with a well-managed smooth adjustment of this episode, inflation would be brought in alignment with our aim as expressed in the Policy from time to time. We must recognise that the oil shock has been externally imposed on India. We have to manage the shock and smoothly adjust to new realities.”

Dr. Reddy said that India’s financial and external sectors were strong, efficient and resilient to manage the adjustment process. In the process of difficult adjustment, the RBI would play its part in moderating and managing aggregate demand so that pressures on prices were not intensified.

He called upon all market participants, in particular the financial market participants, to appreciate the problem with the analysis at their command, “participate with us in managing demand and maintaining orderly conditions in financial markets, while drawing upon the strengths of their respective balance sheets.”

Dr. Reddy further said that “We have successfully moderated signs of overheating that emerged a couple of years ago.” The government has taken supply side measures, as considered necessary. So, as mentioned in the Annual Policy Statement in April 2008, “we now have, by and large, a good overall supply-demand position domestically.” This is a source of strength in managing this unprecedented shock from global oil markets.

Further, in view of the recent escalated price situation, “We may have to build on the actions already taken,” Dr. Reddy added.

Printer friendly page
Send this article to Friends by E-Mail

Business

News Update

Stories in this Section