In fact, going by the indications from the inflation figures, gilts auctions and the day-to-day movment of gilts, the markets were ready for a 25- to 50 basis points hike in the reverse repo rate. However, the central bank -- perhaps in line with the wishes of its political bosses in North Block -- had left the signalling rates unchanged.
The RBI's mission was very clear -- to maintain economic growth at 7%, which runs the risk of being jeopardised by rising oil prices.
According to Dr Reddy, RBI, in a bid to achieve stability and growth, has to strike a balance between some key domestic economic factors like inflation, liquidity, the government borrowing programme and fast expanding credit growth in the system, as well as external 'uncertain factors' like oil, the global financial market and the Chinese yuan revaluation.
In its assessment of the global economy, the central bank said the global oil economy continues to be characterised by elevated prices and considerable volitility, accentuated by speculative activities. The outlook remains highly uncertain, with limited scope for enhanced supplies in the near future. The geopolitical factors continue to be critical. ''For oil-importing countries like India, the problems are getting complex in terms of effect of prices, output, competitive and indeed disposable income,'' averred RBI. In this context, Dr Reddy, in no ambigious terms, pointed out the 'lurking fear' of something going wrong still troubling him. ''We have to balance the risks from many fronts. Amidst risks, confidence is very high in the economy,'' he explained.
Credit growth, he said had been "diversified, very strong beyond expectation."
Obviously, Dr Reddy, with concerns for external factors, has preferred to provide an impetus to domestic economic growth, which might have come under pressure with higher interest rates.
On the higher interest rates, RBI had said that though during 2005-06 so far financial markets have remained stable, interest rates have displayed some upward movement. The call money rate increased from an average of 4.72 % in March to 5% as on July 2005. The repo rate increased from an average of 4.36 % to 4.90% and CBLO rate increased from 4.09 % to 4.93 % over the same period. ''All these developments cannot be read isolatedly from the international developments, particularly when the US Fed has been consecutively hiking rates wth more expected,'' said a top official of the public sector State Bank of India. Dr Reddy aptly concluded that no change is required for now as the correct picture is yet to evolved. When asked about a possible time frame for the tight vigil, Dr Reddy, in a lighter vein, had quipped: 'day and night'. Clearly, the watchdog of the economy is wide awake.