The Reserve Bank of India?s endeavour to ease the ongoing tight liquidity situation does not contradict monetary tightening, Governor D Subbarao said during an analysts? conference call on Wednesday.
?We have looked at liquidity as distinct from the policy tightening. Liquidity has been tight and we had given some guidance on that dimension, that it should be within plus/minus 1% of net demand and time liabilities (deposits) so we are going to ease that. Our endeavour over the next few weeks is to bring that within that limit. And I do not see that as actually diluting our resolve or tightening of monetary policy,? Subbarao said.
He further said demand side pressures have moderated due to the monetary actions that have been taken so far.
On Tuesday, RBI raised its key policy rates for the sixth time since March and said it was unlikely to adjust rates again in the near future but would remain vigilant about inflation that remains above its comfort level. However, RBI is seen raising rates once more this financial year ending in March, according to economists polled by Reuters.
Subbarao also said he expects to bring inflation ?firmly? under control in the next one or two years, giving scope to shift the focus of monetary policy to spur economic growth.
?I would hope that in the next one or two years inflation is firmly under control, both from the supply and demand sides, and we are able to run the monetary policy biased more towards growth,? Subbarao was quoted as saying in an interview.
?Demand pressures are persistent and there are structural factors in food inflation and that will take time to resolve,? he said. ?So, on the inflation front, even though it?s moderating, there are persistent concerns.?
Food inflation has remained above 10% since June 2009 as the government increased prices it pays farmers for grains, according to the Planning Commission.
Besides, the government?s minimum support price has almost doubled in the past six years for rice, maize and wheat.
Speaking on the risks to the India growth story, he said main risk comes from prospects of long and slow recovery in advanced economies.