Concerned over surging food prices, the Reserve Bank of India (RBI) today said that controlling inflation continues to be a "dominant" concern.
"...In fact, inflation has been and continues to be our dominant concern," RBI Governor D Subbarao said, while delivering the welcoming remarks of L K Jha Memorial Lecture by Stanford Professor John Taylor here.
Food inflation touched 17.97 per cent during the week ended February 6, up marginally from 17.94 per cent a week ago, and there are fears that higher food inflation will fuel overall inflation.
Wholesale price inflation crossed the RBI projection of 8.5 per cent by March-end as food items such as sugar, potatoes and pulses turned costlier. It currently stands at 8.56 per cent.
Recently, Subbarao said in Patna that the central bank would stick to its projection for the rate of price rise in spite of the surge in food price-driven inflation.
Referring to the policy stance adopted by RBI during the crisis, Subbarao said the central bank's concern was to arrest the moderation in economic growth rather rescuing a collapsing financial sector as in the Western world.
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"Our concern was not so much rescuing a collapsing financial sector but rather arresting the moderation in economic growth. Second, we never had a fear of deflation although WPI inflation was negative for a short period," Subbarao said.
To support a sagging economy, the RBI eased its monetary policy stance by way of reducing its key rates several times since October 2008.
The apex bank, however, hiked its cash reserve ratio, the amount banks need to park with RBI for zero interest, by 0.75 per cent to 5.75 per cent last month to support growth and tackle inflation.
Subbarao said even at the height of the crisis the financial markets continued to function normally and he attributed this to the fact that Indian banks and financial institutions did not have a significant exposure to sub-prime assets.
Noting that the issues in emerging markets were different from those of developed economies, Subbarao said: "There was quite a bit of pressure on us to do everything that central banks in advanced economy were doing notwithstanding the fact that our situation was different in many respects."
He observed that while in advanced economies, the crisis spread from the financial sector to the real sector, the direction was in reverse in emerging markets as the impact was from the real to the financial segment.