Describing the developments on the inflation front in the country as worrisome Reserve Bank of India (RBI) governor D Subbarao said that the central bank?s conduct of monetary policy will continue to condition and contain perception of inflation in the range of 4.0-4.5 %.
?This will be in line with the medium-term objective of 3% inflation consistent with India?s broader integration into the global economy,? Subbarao said while addressing the International Monetary and Financial Committee (IMFC) in Washington on Saturday. He was participating in the meeting on behalf of. finance minister Pranab Mukherjee and member IMFC representing the constituency consisting of Bangladesh, Bhutan, India and Sri Lanka.
Subbarao said accommodative monetary policies in the advanced economies, coupled with better growth prospects in India, could trigger large capital flows into the country.
?While the absorptive capacity of the Indian economy has been increasing, excessive flows pose a challenge for exchange rate and monetary management,?? he said. Inflation, which was earlier driven entirely by supply side factors, is now getting increasingly generalised.
?Going forward, three major uncertainties cloud the outlook for inflation. First, the prospects of the monsoon in 2010-11 are not yet clear. Secondly, crude prices continue to be volatile. Third, there is evidence of demand side pressures building up,? Subbarao said.