In his first statement since the inflation rate hit double digits of 11.05 per cent, Reddy told reporters that the RBI was approaching this issue in a "calm and calculated fashion" and would initiate steps after further internal assessment and consultations. Over the weekend, the governor met Prime Minister Manmohan Singh and Finance Minister P Chidambaram.
At the same time, he called on financial market participants to use their analysis and draw upon their balance sheets to manage the current situation. A section of the market interpreted the statement as a message to go ahead with interest rate decisions without waiting for central bank actions.
During the current financial year, as part of its efforts to tame inflation, the RBI has raised the cash reserve ratio (CRR), or the proportion of deposits set aside by banks, 75 basis points to 8.25 per cent, and the repo rate, or the rate at which it lends to banks, 25 basis points to 8 per cent, the highest in the current government's tenure.
So far only three players