—Vivek Bendre

Growth story intact: The RBI Governor, Dr D. Subbarao (right), and the Deputy Governor, Mr V. Leeladhar, at a press conference in Mumbai on Tuesday. The Governor said that the present inflation is largely a global phenomenon and is being driven by prices of food, metals and crude. But supply side measures had kicked in and the momentum of inflation is slowing down.

Our Bureau

Mumbai, Sept. 9 The current high level of inflation is short-term in nature and monetary policy measures will have an effect on it, said Dr D Subbarao, Governor, Reserve Bank of India.

The recent inflation has its origins in the supply side, which can be moderated largely by supply-side measures; but demand-side responses have to complement these measures, Dr Subbarao said, while addressing his first press conference as the RBI Governor here on Tuesday.

The present inflation is largely a global phenomenon and is being driven by prices of food, metals and crude. But supply side measures had kicked in and the momentum of inflation is slowing down.

Though demand is not the main problem, in the absence of further flexibility on the supply side, demand management has to be part of the solution, he said.

Any further tightening in monetary policy will depend on the impact of the measures already taken, the drivers of demand and global developments.

While sticking to the RBI’s projected figures of 8 per cent GDP growth, Dr Subbarao said they would be reviewed in the October Monetary Policy. The structural India growth story is still intact and credible. The recent moderation is only a cyclical downturn, a press statement by the Governor said.

There is need for co-ordination between the monetary and fiscal policy, even as the authorities are independent, he said.

Regarding the RBI’s exchange rate policy, he said that the view is to manage volatility in a flexible manner.

The RBI would continue to manage the capital account convertibility process and it remains important to the government as well as to the RBI, Dr Subbarao said.

“A lot has been done on capital account convertibility. There is the Tarapore Committee Report. I understand on some measures we are ahead of the curve. On some measures, we are slightly behind the curve. But that’s the way you would expect in the real world situation because the Tarapore Committee report was written at a point in time and since then there have been developments in the real world,” he said.

He also said that while all derivatives – currency derivatives, interest rate futures and credit derivatives - are important in the process of financial sector reforms, the RBI would introduce them in a phased manner after taking into account the international situation. Real sector reforms, such as building physical and social infrastructure, should precede financial sector reforms, the Governor added.

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