Reserve Bank of India governor YV Reddy once again surprised the market by hiking the cash reserve ratio while keeping policy rates unchanged.
MUMBAI: Reserve Bank of India governor YV Reddy once again surprised the market by hiking the cash reserve ratio while keeping policy rates unchanged. Reddy spoke to journalists hours after the policy announcement. Excerpts
Why did you choose to hike CRR?
CRR is just one of the instruments for effective management of liquidity. The issue is removing the LAF (reverse repo) limit. We were inclined to go for a single benchmark so we had kept the ceiling. Then we saw that money market had become more volatile because of capital flows so we revisited the situation. But it is not a status quo entity.
Won’t a CRR hike hit small banks together with large cash rich ones?
A CRR hike is proportional to the deposits, it is not regressive. This is how it is.
What is your view on asset prices?
At the moment process of moderation has commenced. If it continues like this, more action may not be needed. We may revisit select sectors. Banks that have high exposure to such sectors may be asked whether they have the right weightage. There is no question of a fine because banks have done nothing wrong.
Which is the significant rate now?
It was the repo rate when the reverse repo ceiling was on, but now there is no ceiling so it is the band (repo-reverse repo band).
Your thoughts on inflation?
Inflation is out of the newspaper headlines but not out of the mind of the people. There is still the fear of a rise in their mind. We have some figures like lower non-food credit growth, headline number, supply elasticity and output increases but inflation expectations have to be well anchored. A higher inflation than the global economy has a risk. The more we are pushing for liberalisation and globalisation it is important for the RBI to be vigilant.
Are you advising the government in managing capital flows? What are your views on the exchange rate?
Managing capital flows is part of the broader public policy and for the government to decide. Public cost for stability is the RBI’s emphasis. It’s for broader public policy that we are trying to reduce volatility. Exchange rate is not only for exporters it is one of the price elements of the economy. It also affects common people.
What is your message for the common man on inflation?
RBI’s focus is the household. Inflation is their concern. Price stability is necessary condition for growth and is critical at this current juncture of global integration.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}