The Hindu Business Line : Inflation trend on expected lines: Reddy

The Reserve Bank of India Governor, Dr Y.V. Reddy, on Friday allayed inflation fears saying the current numbers were "by and large" on expected lines.

As of now the central bank is sticking to its earlier inflation estimate of 5-5.5 per cent for the current fiscal, he told presspersons on the sidelines of a function to mark the fourth convocation of the Indira Gandhi Institute of Development Research. For the week ended December 23, the inflation stood at 5.48 per cent.

He said economic growth had been strong but did not elaborate, adding that "we will come out with the detailed statement (the third-quarter review of monetary policy) towards the month end."

CRR hike effect

He said liquidity conditions were not volatile and described the hike in cash reserve ratio (CRR) as a "fairly non-disruptive adjustment''.

The RBI had raised the CRR for banks from 5 per cent to 5.5 per cent in two phases to soak up a slice of surplus cash in the banking system. That move had dried up the money markets pushing up inter-bank call rates to a 6-year high of 19 per cent last week.

"After a policy announcement some rebalancing is usually required, which in turn requires some market participants to take corrective action," Dr Reddy said.

Asked whether the CRR hike had its desired effect, he said monetary measures work over time.

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