Y V Reddy, Governor of Reserve Bank of India (RBI), today said the reverse repo rate has been hiked by 25 basis points to absorb any liquidity overhang in the market and contain inflation expectations."The RBI does not want liquidity sloshing around, which may have implications for inflation," he said. The hike is a pre-emptive step to contain any inflationary expectations, he added.Asked about the implications of rate change, Reddy said it is difficult to say how policy rates would get transmitted to the various markets.Referring to the rise in global oil prices, Reddy said some part of it has been absorbed domestically. "We are now more experienced to assess implications of oil price movement," he added, and said the inflation estimate of 5-5.5% factors in absorption of price hike to someextent.On government's borrowing programme, Reddy said RBI would be able to manage the borrowing requirement and also maintain appropriate liquidity for credit growth.On possible revaluation of the Chinese currency yuan, he said: "We are looking at it. Any revaluation has domestic implications (impact on the Chinese economy). There is nothing for India to be concerned regarding any revaluation as our exposure to China is mainly through trade. ""We may be slightly better-off in terms of competition in case of any revaluation of the Chinese currency," Reddy added.
