Reserve Bank of India (RBI) governor D Subbarao said various anti-inflationary measures had started yielding results and now the government could focus on issues related to growth and liquidity.
"The endeavour of our monetary stance has been to manage liquidity – both domestic and forex liquidity – and to ensure that credit continues to flow for productive activities," he said.
The RBI governor was in the city to address a Bank for International Settlements (BIS) conference on 'Mitigating spillovers and contagion- Lessons from the financial crisis'.
Inflation for the fourth straight week declined to 8.4 per cent from 8.84 per cent for the week ended November 22, on cheaper food and fuel prices and slowing down of domestic demand.
Rao, who is on his maiden visit to Hyderabad after taking over as RBI governor, said the impact of global financial crisis was much stronger and longer contrary to the belief that India was insulated from them. India will be the first and the fastest country to recover but a painful adjustment is inevitable, he added, hinting the RBI would maintain a comfortable liquidity position.
On why banks were not cutting interest rates despite RBI infusing liquidity into the system, he said RBI as a regulator would only signal banks (to cut rate) through various measures but would not give a mandate to them.
Earlier at the conference, the second BIS seminar to be organised by RBI, he said the global financial situation continued to be uncertain and unsettled. "The global economic outlook has deteriorated sharply over the last two months."
More From This Section
"The Indian banking system is not directly exposed to the subprime mortgage assets and has limited indirect exposure to the US mortgage market or to the failed institutions or stressed assets. Indian banks, both in the public and private sector, are financially sound, well capitalised and well regulated. Even so, India is experiencing the knock-on effects of the global crisis," Rao said.
The present crisis should be used to draw lessons to manage global imbalances, reform financial sector regulation, address regulatory arbitrage and keep the financial sector in line with the real sector, he pointed out.