The Hindu Business Line : RBI ‘very concerned over high inflation’

Mumbai, March 31 Inflation is ‘unacceptably high’ and the Reserve Bank of India is in full readiness to take appropriate action if required, the RBI Governor, Dr Y.V. Reddy, has said.

Elaborating on the central bank’s policy response to inflation, the Governor said, “We are very, very concerned about the impact of the recent spurt in prices on inflation expectations. We, at the RBI, are in full readiness to take appropriate action, if and when we make a judgment that any action is needed. But any decision to act requires careful assessment of this extremely complex situation.” Dr Reddy was speaking to reporters on the sidelines of the Yashwantrao Chavan Memorial lecture here on Monday.

Global price rise

The Governor said that the Government was taking several supply side initiatives to contain inflationary pressures. “At the same time, the increase in global prices for relevant items was far higher than what has happened in India so far. So, there is a potential for inflationary pressures from the global side on Indian prices,” he said.

Domestic inflation touched a 13-month high of 6.68 per cent for the week-ended March 15.

The Governor, however, gave a favourable outlook for the Indian economy: “Overall, the RBI is confident that in terms of growth and stability, India will continue to be one of the best performing economies in the world, in the months ahead.”

Explaining the reasons for the higher inflation numbers, he said, “Firstly, the large increase in prices is mainly on account of the increase in prices of food, fuel and metals, including steel. Secondly, there is a sudden spurt in inflation numbers. The sudden spurt is also due to delayed adjustment of some prices, in particular oil and steel”.

DERIVATIVES

On the recent issue of corporates suing banks over losses made due to investments in exotic derivative instruments, Dr Reddy said that the RBI had received representations from a couple of corporates in this regard and that the issue is being examined.

He said that the RBI had issued comprehensive guidelines on derivatives and as long as these guidelines are followed by the banks in letter and spirit, there should be no scope for disputes. “RBI is closely monitoring and having a dialogue with a few select banks, which are active in this regard. As per the current assessment, RBI does not anticipate any systemic problems since these transactions happen to be basically micro issues,” he said.

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