Despite surging inflation, which has touched a 44-month high of 7.83% for the week ended May 3, Reserve Bank of India (RBI) governor YV Reddy is upbeat that it may start moderating soon following steps taken by the apex bank and the govern-ment.
?As per indications, the currently elevated levels of the wholesale price index may start moderating notice-ably as monetary, fiscal, and adminis-trative measures impact the economy, while other seasonal as well as global factors turn favourable,? Reddy said, adding that in the event of new adversities ema-nating in the domestic and global economy, RBI is ready to respond swiftly and appropriately.
Reddy was delivering a lecture at the Institute of South Asian Studies, Singapore, on Tuesday.
The resolve going forward would be to continue condition policy and perceptions for inflation in the range of 4-4.5% so that an inflation rate of around 3% becomes a medium-term objective, Reddy said.
?As mentioned in the annual policy, our endeavour is to bring headline inflation to around 5.5% in 2008-09 with a preference for bringing it as close to 5% as soon as possible, recog-nising the evolving complexities in globally transmitted inflation,? he added.
Talking about domestic financial markets, Reddy pointed out that the RBI has not been seriously affected by the financial turbulence overseas, except for some increased volatility in the equity market, which is relatively more open.
He said that while the trade ac-count may be impacted by elevated oil prices, the current account deficit may continue to be modest, thanks to strong invisibles, and could be com- fortably be met by the anticipated net capital flows.
He noted that as regards financial institutions, there are indications of continued improvements in efficiency and enhancement of resilience.
?India has a bank-dominated fi-nancial sector and every scheduled commercial bank in the country has higher capital adequacy than the minimum prescribed ratio of 9%. In fact, provisioning and risk-weight re-quirements have been tightened at a timely manner by the RBI to supple-ment monetary measures, in order to moderate early signs of overheating.
We will continue to accord high priority to financial stability while empha-sising the interest of depositors, service to the common man, financial inclusion, and an enabling environ-ment for growth through efficiency gains,? he said.