labels: Economy - general
RBI to factor in inflation, US slowdown into credit policy news
21 January 2008

Mumbai: The Reserve Bank of India will continue with its tight money policy in view of the pressure on the prices of crude oil and food items and uncertainties in global financial markets, RBI governor Y V Reddy said.
 
"We will continue to be sensitive to that as they are essential commodities which have very great impact on the inflationary expectations," Reddy said on the sidelines of a convocation function.

He said, the monetary policy review, due on January 29, will also take into consideration the global effects of the US subprime mortgage crisis and a possible slowdown in the US economy.

"The global financial uncertainties were not entirely unanticipated but the intensity was not predicted nor was the duration expected," Reddy said. On the other hand, high global food and crude oil prices were anticipated although the 'pressures have been flat', he added.

He said while the RBI policy has been sensitive to liquidity problems for over a year, "The outlook now is far more uncertain now for global situation than before."

The Reserve Bank has been holding its short-term lending rate at 7.75 per cent for nearly 10 months, after raising it five times between June 2006 and March 2007.

However, the RBI is expected to react to a any aggressive cut in interest rates by the US Federal Reserve as it would widen the rate gap between India and the United States and worsen India's excess liquidity problem.

The Reserve Bank, however, would have to consider both the effects of a rise in foreign capital inflows and high global food and oil prices that have a bearing on inflationary expectations.


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RBI to factor in inflation, US slowdown into credit policy