The Reserve Bank of India governor, YV Reddy, acknowledged the fact that the country was ??vulnerable?? to fluctuations stemming from global oil and foodgrain prices.
Reddy was speaking at a function organized by the Foreign exchange Dealers? Association of India (Fedai) on Monday.
Reddy spoke at length on the national foreign asset funds that broadly consist of foreign exchange reserves, stabilization funds and sovereign wealth funds. He, however, did not touch upon the burning issue of foreign exchange inflows and its impact on the rupee and the upward pressure on the inflation. ??This was disappointing,?? said a treasury head of a government bank. The dependence on oil imports for most of the country?s energy needs is more likely to push up inflation levels due to firming global oil prices, bankers said on the sidelines of the function.
Global crude crossed $83 a barrel at $83.90 on September 20. For a country that imports 73% of oil to meet energy requirements, such a price is bound to spurt inflation levels from the current 3.4 % (as of September 22) in addition the incremental value due to the base effect. Bankers were of the view that inflation levels could go up to 6% levels given the current scenario.
Reddy, earlier, in his inaugural address, said that there was no requirement under the present circumstances to set up a stabilisation fund or a sovereign wealth fund. A stabilization fund is designed primarily to achieve medium-term macroeconomic stabilization objectives, arising out of domestic economic and financial effects of volatility in export earnings while a sovereign wealth fund is essentially carved out from a part of forex reserves, he said. ??If and when we decide to set up these funds we have to put in place measures of governance, transparency and accountability, which would provide the necessary comfort,” he said.
