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Price stability will be ensured, says RBI

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Dr Y.V. Reddy (left), RBI Governor, talking to Mr G.N. Bajpai (right), SEBI Chairman, and Mr C.S. Rao (second from right), IRDA Chairman, at a function in Hyderabad on Friday. - A. Roy Chowdhury

Hyderabad , Aug. 27

ALLAYING apprehensions on the rising inflationary expectations and volatility in the domestic economy, the Reserve Bank of India Governor, Dr Y.V. Reddy, expressed confidence in ensuring price stability and containing the inflationary expectations.

Addressing the captains of the banks at the Institute for Development and Research in Banking Technology (IDRBT) here on Friday, he said the apex bank has been closely monitoring the developments on the current macro-economic situation in the country and would initiate measures on an ongoing basis to ensure price stability.

According to him, several fiscal actions were taken in the recent past in relation to cutting duties on oil and steel, which indicates a determined fiscal response. The corporate entities have also taken upon themselves the importance of maintaining certain amount of pricing.

Another development was that the RBI has held a series of discussions with the banks and institutions, which resolved to have price stability and minimise volatility and knee-jerk reactions.

He described the truckers' strike as temporary supply disruption in certain localities rather than a factor influencing inflationary expectations. According to the RBI Governor, the money markets and forex markets were stable, though there was certain amount of volatility in the Government securities market.

The RBI Governor was of the view that the positive side has become more positive. There has been virtual national consensus that high inflation was not good. Another positive aspect is that the inflation tolerance has come down to around five per cent from double digits. The good news on the interest rates front has been the recognition that there would be interest rate cycles within stability.

Further listing the positive aspects of the domestic economy, Dr Reddy said the investment activity has been picking up and the capital goods imports have been rising, which means the output would go up in the next few months. Exports were also growing, thereby minimising the impact of hike in oil prices, he said.

Though the global economy continues to be uncertain, the domestic economy appears to be turning strong. According to Dr Reddy, "India has emerged as an island of financial stability in a sea of turbulence."

Earlier, Dr Reddy, along with the Chairman of the Securities and Exchange Board of India, Mr G.N. Bajpai, and the Chairman of the Insurance Regulatory and Development Authority, Mr C.S. Rao, inaugurated the National Financial Switch, which facilitates inter-connectivity between the banks' switches and inter-bank payment gateway for authentication and routing the payment details of various e-commerce transactions and e-government activities.

The IDRBT Director, Dr V.P. Gulati, said some banks such as Bank of Baroda, Corporation Bank, IDBI Bank and ICICI Bank were already connected to the National Financial Switch and another 15 to 18 banks would be connected in the next few weeks.

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