Confidence, inflation targets improved says Reddy

Source: Reuters

India's Central Bank governor said on Monday confidence of hitting the bank's recently improved growth and inflation targets for the current fiscal year had risen because the global outlook had brightened. Y.V. Reddy said on the sidelines of a Bank of International Settlements (BIS) bi-monthly meeting, where the Group of 10 central bankers announced they saw global growth picking up and staying strong. ''We indicated to them (BIS) a GDP growth projection of 6.5 to 7.0 per cent with an upward bias and inflation of 4.0-4.5 per cent,'' Reddy said.

''After assessing the global economic developments, there is reinforced confidence in our projections and estimates of GDP and inflation,'' he said. Last week the Reserve Bank of India raised its projection for gross domestic product growth in the April 2003-March 2004 year to 6.5-7.0 percent from 6 per cent and cut that for inflation to 4.0-4.5 per cent from 5.0-5.5 per cent.

Reddy declined comments on monetary policy, but said the central bankers had appreciated India's management of the rupee. In the mid-term review of monetary policy, the RBI kept the bank rate, daily repo rate and the cash reserve ratio (CRR) unchanged and reiterated a soft and flexible monetary policy stance. Faced with a mounting pile of foreign exchange reserves over $92 billion, the Central Bank will soon be re-defining the role of its short-term money market operations, such as the Liquidity Adjustment Facility (LAF), and key bank rate, Reddy said.

Still, he declined comment on whether hiking the CRR, now at 4.5 per cent of net deposits, would be an option for the Central Bank as growth improves and it has to keep sterilising the rupee funds released through intervention.