RBI keeping a close watch on inflation.

The Reserve Bank of India will revisit next month the inflation rate now ruling at 10.2 per cent, while expecting it to come down to 5.5 per cent by March 2011.

The RBI Governor D. Subba Rao told mediapersons on the sidelines of an awards function of bankers here on Friday that the central bank was keeping a close watch on inflation, particularly with regard to non-food and fuel items, in view of unanticipated developments in the domestic and external markets.

It was studying the European crisis and the problem of liquidity here. He said that there was concern on inflation side though there was growth with investments picking up.

Stating that the RBI had taken measures to manage temporary liquidity problem, Dr. Rao said the problem was addressed for the next four weeks.

The RBI had already announced that it was going to buy back Rs. 20,000 crore of debt on behalf of the government. He also said that Rs. 13,000 crore of the Rs. 20,000 crore was actually due for redemption in the next four weeks. This was a temporary liquidity injection measure to what was seen as a temporary liquidity constraint in the market.

On continuing with the plan to raise Rs. 60,000-crore debt for the government, he said that was the plan as of now. In order to manage liquidity, the RBI had decided to buy back some securities that were due for redemption in the next few weeks ahead of time.

Referring to interest rate deregulation, he said the RBI was in favour of it but the bank wanted to time it properly.

The base rate system that will come into effect on July 1 would be an important reform measure towards deregulation of interest rates. The only interest rates that will be regulated then will be rates on agriculture, exports and interest on savings accounts.

The repo rate would remain the operative rate for the next few weeks. But beyond that it would depend on how the liquidity situation would evolve and what action the bank might take, he added.

Source : The Hindu