RBI board to take stock of high inflation

New Delhi, May 7: Amid continuing concerns of high inflation, the Reserve Bank’s board of governors will meet on Thursday in Shillong to take stock of the situation arising out of high commodity prices.

The meeting is held in the back drop of international crude oil prices crossing $120 a barrel and inflation crossing the 7.5-per cent mark.

Like other central banks, the Reserve Bank is also concerned that the spurt in food, commodity and oil prices coupled with fears of a US recession could fuel inflation and slow down the economic growth.

The RBI governor, Mr Y.V. Reddy, and the deputy governor, Mr Rakesh Mohan, are also expected to deliberate on the impact of recent policy measures announced by the central bank.

Sources said the board could also consider some additional monetary measures to tame inflation and also temper the inflow of foreign capital, as forex reserves have touched the $310-billion mark.

It is not clear what the RBI can do about capital inflows besides mopping up the extra greenback. This would lead to a stronger rupee. It would have to be an administrative decision taken by the government as it would involve measures to curb capital inflow.

It may be noted that the Securities and Exchange Board of India had in October last year, banned funds coming in through participatory notes, unless the institutions concerned registered themselves with the Sebi.

The Reserve Bank, in its annual credit policy announced last week, raised the percentage of cash that commercial banks must keep in reserve. It was the second time in less than two weeks that RBI raised the cash reserve ratio to combat an average annual inflation rate of over 7.5 per cent.

The RBI governor had also made it clear that they would be watching the situation and would not hesitate to take measures if the situation warranted. (PTI)