After taking charge of Reserve Bank of India (RBI) as governor, Duvvuri Subbarao on Tuesday at his first press conference said that Financial Sector reforms would be on the top of his agenda and to continue the rate of growth, India would have to slow down the inflation rate.
In the financial reform sector, D Subbarao believes to boost the real sector reforms that are now in transition period due to high rate of inflation and RBI’s tightening monetary policy. “Real sector reforms, such as building physical and social infrastructure, should precede financial sector reforms,” said Subbarao.
He expressed that there was nothing wrong in introducing forex derivatives and interest rate derivative as government and market participants were displeased with RBI to not introduce other crucial finance reforms in stead of currency futures and interest rate derivatives.
In this regard, he said, “All derivatives – currency derivatives, interest rate futures and credit derivatives - are important in the process of financial sector reforms and RBI would introduce them in a phased manner after taking into account the international situation.”
For improving financial sector reforms, Subbarao said, “What we need to do is to use the available analysis and advice to draw a roadmap that responds to our immediate and medium-term needs. Obviously, this is a shared responsibility for RBI and all other regulators.”
Responding over RBI’s estimation of India’s growth rate at 8%, Subbarao said, “There have been some moderation in prices although there is no apparent trend and it is too early to take a call on inflation.” However, RBI has done well to restrain the inflation and we would continuously review our tightening monetary policy, he added.
Blaming the international price rise in food, metal and crude oil, Dr Subbarao said, “Origins of inflation lie in prices largely of food, metals and crude. Food is an annual if not a biannual phenomenon and responses have already kicked in. Even in metals, I think both around the world and in our country, supply response have kicked in. The movement in crude prices has been in response to the supply-demand factors and the US situation and the position of the dollar. So, those responses have also come in.”
In a move to curtail inflation, Subbarao said, ‘the current high level of inflation is short-term in nature and monetary policy measures will have an effect on it, and any further tightening in monetary policy will depend on the impact of the measures already taken, the drivers of demand and global developments.'
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