US developments may affect policy decisions: RBI governor

Mumbai: The current economic uncertainties in the US and the problem of high fiscal deficit in the country have together complicated policy management, Reserve Bank governor Y V Reddy said.

"There is a determination among policy makers to ensure early end to the uncertainty but a major share of comfort has to come from the US," Reddy said on the sidelines of a lecture.

Reddy's comments come in the wake of increasing concern expressed by economists that the US has slid into recession.

A new survey, published by the Wall Street Journal, shows a "precipitous shift" toward recession in the US. New data that show a sharp drop in retail sales last month also reinforce the findings.

The governor said the central bank had taken into account high oil and food prices in the January monetary policy.

"Much of what is happening was not entirely unanticipated but its magnitude is sometimes difficult to guess," he said.

"By and large uncertainty exists and are continuing...As of now it is not clear when things will get normal or less abnormal," he said.

Reddy said policy management becomes tough with high fiscal deficit and a widening current account gap.

Meanwhile, finance minister P Chidambaram said the Reserve Bank is unlikely to go for an interest rate cut to boost the industrial production because of high inflation.

"As long as there is a threat of inflation, you have to trust the RBI to use policy interest rates in order to contain inflation and dampen inflationary expectations," he said on the sidelines of a media conclave.

Chidambaram, however, said determination of policy interest rates is under the domain of the RBI.

He attributed high inflation to rising prices of food and commodity prices in the world, saying that India is not entirely insulated from the global trends.