The Hindu Business Line : ‘Controlling inflation is priority’

The current 12 per cent inflation levels are much higher than the Reserve Bank’s comfort levels of 5-5.5 per cent, said Mr S.S. Tarapore, former Deputy Governor, RBI.

Mr Tarapore was speaking at the sidelines of a Dunn and Bradstreet seminar on risk management.

Mr Tarapore feels that the incremental credit deposit ratio of 86 per cent would force the RBI to inject massive liquidity into the system. This would subsequently lead to cessation of credit that could be detrimental to the economy.

He was also of the opinion that the RBI should intervene to ensure the gradual and not precipitous depreciation of the rupee.

“The industry can handle small swings in the exchange rate but would suffer losses if the rupee appreciates or depreciates by 20-30 per cent.”, he added.

He stressed the need for the RBI to raise interest rates to curb capital outflows.

The seminar focused on the need for stringent risk management policies in the background of the sub-prime crisis and the current global financial crisis.

Mr C. S Mohapatra, Director, Capital Markets, Ministry of Finance, stressed the need for keeping regulations one-step ahead of innovation to avoid financial crisis in the economy.

He blamed the opacity of the OTC markets, excesses of the US investment banks and the regulatory gaps for the current global financial crisis.

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