The Reserve Bank of India Governor, Subbarao told media in Basel, Switzerland that the spoilsport of the Indian economy, inflation, would abate within the next few weeks.
Subbarao acknowledged that the recent hike in fuel excise duty may spike the inflation rates, but it will weaken and be under control ‘in the weeks and months ahead’. He pointed out that even as prices of non-food consumables and fuel are on the increase, the food prices have hit a plateau.
The central bank Governor said that the bank would see to it that the interest rates do not impact the economic drive of the country adversely. However, he refused to be drawn into the issue of future interest rate hikes.
Referring to RBI’s next policy review scheduled for April, he said that RBI could utilize its time-tested policy tools of liquidity and cash reserve requirements to contain inflation, if need be. The general consensus is that the interest rates would mount during the next RBI policy review.
Subbarao stressed the importance of narrowing the fiscal deficit, which was given prominence in the recently presented Union Budget 2010. According to him, this is a vital step in managing inflation and facilitating demand for private credit. He said that reduction in fiscal deficit would be helpful in monetary policy management.
The governor exuded confidence that the government borrowing program would proceed without hitches this year, like the previous year. He also said that the level of yields in the 10-year government bonds is showing a positive trend, but would be managed over the next year to stay within reason without impacting the economic growth.
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