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RBI prescription to tackle inflation

Special Correspondent

Apex bank Annual Report 2007-08 released

MUMBAI: As the inflation rates have hardened beyond tolerable levels, monetary policy would continue to address aggregate demand pressures which appear to be strongly in evidence, the Reserve Bank of India (RBI) stated. However, at the same time, there is need to improve supply position in some critical sectors.

“In order to tackle food price inflation, the demand-supply mismatches need to be addressed over the medium term, which would necessitate raising crop yields through the use of modern technology, improved irrigation facilities as well as provision of market-based incentive systems for the farmers. An overriding priority for monetary policy would be to eschew any further intensification of inflationary pressures,” RBI stated in its Annual Report for 2007-08, which was released on Friday.

Headline inflation firmed up further to 12.6 per cent on August 9 from 7.7 per cent at end-March 2008 (and 4.2 per cent a year ago), partly reflecting the impact of another round of upward revision in the prices of administered petroleum products.

In contrast to the global situation, India has been, by and large, spared of global financial contagion resulting from the sub-prime turbulence for a variety of reasons. “A few instances of pre-emptive regulation to ensure financial stability include, inter alia, prescription of a board mandated policy in respect of real estate exposure of banks and increasing risk weights for various segments of the financial sector, provisioning against standard assets, norms on exposure to inter-bank liability, norms on financial regulation of systemically important NBFCs and banks’ relationship with them, norms for securitisation and non-SLR investments and marking-to-market valuation norms,” it said.

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