"The objective currently is to contain the inflation rate within an upper bound of 5 per cent and attempt to reduce it further in the medium term," RBI Deputy Governor Rakesh Mohan said at the Entrepreneurship Development Institute of India at Ahmedabad, a speech copy released here stated.
"Inflation was an issue during much of 2007, and continues to be of concern now," Mohan said.
Speaking on the role of financial sector to promote innovation and growth, Mohan said monetary policy endeavour was to provide a financial environment of low inflation and stability.
"To keep the momentum of high growth, it is extremely important to recognise that the best contribution monetary policy can make is indeed to ensure that inflation and inflation expectations are well anchored," Mohan said.
He said that monetary policy can foster innovation through an environment of low inflation, low inflation expectations and maintaining financial stability.
The RBI Deputy Governor said price and financial stability were very crucial to sustain the growth at current levels without any disruptive forces coming into play.
"In view of the success in reducing inflation from the long-run average of 7-8 per cent to 4-5 per cent now, the society's tolerance rate of inflation has also come down," Mohan said.