The Hindu Business Line : `Rate hike consistent with policy stance'

Pressure factors
The domestic factors that contributed to the rate hike were intense economic activity, inflationary pressures, high credit growth and significantly large liquidity

DR Y.V. REDDY

Pune , June 10

The Reserve Bank of India Governor, Dr Y.V. Reddy, on Saturday defended the recent hike in short term interest rates saying that it is consistent with the RBI's monetary policy stance and in sync with the policy being followed by several other central banks.

Responding to queries from reporters on the 25 basis points hike in repo and reverse repo announced on Thursday, Dr Reddy said "several central banks have been increasing interest rates and our monetary policy stance cannot be too much out of sync."

Dr Reddy was in Pune to inaugurate the third annual convocation of the National Institute of Bank Management.

He said the domestic factors that contributed to the rate hike were intense economic activity, inflationary pressures, high credit growth and significantly large liquidity.

The recent hike in fuel prices and rising commodity prices are expected to increase inflationary pressures. Global interest rates and commodity prices have also been hardening.

Watch on price situation

Dr Reddy said economic growth would be on track at 8 per cent despite the threat of inflationary pressures. The RBI would try to retain inflation within 5-5.5 per cent this year. In the medium term, the target is less than 5 per cent.

The RBI wouldwatch the price situation with regard to commodity and credit price. This required greater attention, he said.

When asked about the impact of the likely rate hike by the US Fed in July, he said global monetary policy had evolved as an important factor, though not the only one. Fed hike was relevant but not the most important factor. The RBI was keeping global factors in view, he said.

About the volatility in the stock market, Dr Reddy said the RBI would see that banks do not have unduly high exposure in the stock market. He said there was no spillover of the stock market volatility in the forex or G-Sec market.

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