Liquidity management on to curb inflation: RBI

Reserve Bank of India (RBI) will continue to actively manage liquidity to ensure inflation expectations are under control, said Rakesh Mohan,deputy governor today.

"There has to be reasonable degree of sterilisation in order to maintain monetary growth we would like to have," Mohan said addressing an investor forum of Citigroup.

Currently, money supply growth is 21.8 per cent against RBI's projected level of 15 per cent for 2006-07 (April-March). The focus will be on liquidity and all measures will be used to manage it, he said. Mohan said capital inflows have surged on the back of buoyant economic growth.

"With this kind of buoyant growth and expectations of growth, flow of capital has increased tremendously," Mohan said. The huge capital inflows are adding to liquidity, he said.

Mohan hopes India will sustain over 8 per cent in the next 10-15 years. India's GDP growth is estimated to be 9.2 per cent for 2006-07 versus 9 per cent the previous year. The central bank deputy governor said there is no change in inflation forecast for 2006-07 at 5- 5.5 per cent.

"There is no change from whatever we said in January policy," said Mohan. Inflation has been mostly a combination of food prices and manufacturing goods prices, he said.We observed higher price increases in some of the manufactured goods that are not that easily substitutable by imports," Mohan said.

There could be transitional problems of supply inelasticity, which may lead to overheating and which needs to be managed, Mohan said.