Capping inflation most imp aim: RBI

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In its monetory policy review statement, the Reserve Bank of India hiked the Repo Rate by 25 bps to 7.5%. The statement which was very much on expected lines, left CRR and Reverse Repo rate unchanged at 5.5% and 6% respectively. The RBI has also kept the Bank Rate unchanged at 6%.

Commenting on this development, Governor of RBI YV Reddy says capping inflation is the most important objective and containing inflation helps growth. The current measures to curb inflation is pro-growth. 

According to Reddy,the concerns relate to inflation and inflation expectations. He adds that RBI is trying to align the policy measures and inflation with maintaining growth momentum.

Reddy believes that liquidity management will be active and consistent with monetary policy stance. He says that residential housing market should continue to receive attention of RBI.

Reddy comments on the liquidity management saying, "In the given context the liquidity management has to be consistent with monetary policy stance. As we emphasized the monetary policy stance currently emphasizes withdrawal of accommodation. Therefore liquidity management will be consistent with the idea of withdrawal of the monetary policy accommodation. On a day-to-day basis what happens is matter of detail, which has to be managed and faced on a day-to-day basis."

He comments that monetary, prudential measures and managing Capital Account are the three priorities. the issues to be addressed are accelerated asset prices, credit growth and supply bottlenecks.

The GDP has been revised upwards, says Reddy, and adds that supply conditions are better in general.

Reddy believes that the environment of monetary policy is tightening and adds that domestic demand pressures are major issues right now. The credit growth is strong and excessive.

Deputy Governor of RBI Rakesh Mohan says that the prices of manufactured goods are reflecting on core inflation and feels that the prices of manufactured goods are showing excess demand.