Our Bureau

Mumbai, Sept 8

OIL prices, at the current levels, could lead to a slowdown in world economic activity. However, there is no change in the Reserve Bank of India's assessment of growth, as of now, according to Mr Rakesh Mohan, Deputy Governor, RBI. The apex bank continues with its forecast of seven per cent growth for India, he added.

Speaking at the 99th Foundation Day of the Indian Merchants Chambers today, Mr Mohan said that the RBI would act to keep inflationary expectations down despite the high oil prices, as this would also help keep interest rates down.

"Assessment of inflationary expectation has not changed from that of the quarterly monetary policy review. We have already accounted for a pass- through of further oil price hike."

The RBI has been following a credible policy to fight inflation and to stop translation of higher commodity prices, including oil, into higher inflation, he added.

In the next coming years, inflation may even touch international inflation rates of around two per cent, he said.

India cannot sustain the seven per cent growth as long as growth from agriculture sector is two per cent, according to the RBI Deputy Governor.

"We need to step up public investment in rural agriculture and integrate the agri sector with the global agri markets," Mr Mohan said. This will give opportunity for better price discovery and for better hedging of risks.

He also said that it was important to remove the impediments to investment so that domestic savings could be utilised for growth.

(This article was published in the Business Line print edition dated September 9, 2005)
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