‘Reverse repo rate hiked to absorb liquidity overhang’

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Mumbai, April 29: The Reserve Bank of India (RBI) governor YV Reddy on Friday said the reverse repo rate has been hiked by 0.25% to absorb any liquidity overhang in the market and contain inflation expectations. “RBI does not want liquidity sloshing around which may have implications for inflation,” Mr Reddy said addressing mediapersons here.

He said the hike is a pre-emptive step to contain any inflationary expectations. Asked about implications for rate change, Mr Reddy said, it was difficult to say how policy rates would get transmitted to various markets. The repo rate (the rate at which RBI lends to the banks) has been kept as it is, he said.

Referring to the hike in global oil prices, the governor said, some part of it has been absorbed domestically. “We are now more experienced to assess price implications of oil price movement,” he said, adding the inflation estimate of 5-5.5% factors in absorption of price hike to some extent.

Mr Reddy said people have become sensitive to inflation and take note when it crosses 5%. On the government’s borrowing programme, Mr Reddy said that RBI would be able to manage the borrowing requirement and also maintain appropriate liquidity for availability of resources for credit growth.

On possible revaluation of Chinese currency ‘yuan’, he said: “We are looking at it. Any revaluation has domestic implications (impact on Chinese economy).” There is nothing for India to be concerned with effect of any revaluation as India’s exposure to China is through trade. India may be slightly better off in terms of competition in case of any revaluation of the Chinese currency, he added.