Inflation pressure still on, says Mohan

The Reserve Bank of India will continue its vigil on inflation while managing liquidity and capital flows will remain the main challenge for the rest of this fiscal.

"Though there has been some reasonable effect, inflation pressures are still ruling firm... Vigil on inflation should continue and there are no grounds for complacency on this front," RBI Deputy Governor Rakesh Mohan said at a brokers' meet on Friday.

The Reserve Bank in its recent first-quarter review of credit policy kept inflation outlook unchanged at close to 5 per cent in the fiscal. Its medium term objective was to keep inflation in the range of 4-4.5 per cent. According to government data, inflation rate for the week ended July 21 declined to 4.36 per cent.

"We will keep on pushing it (inflation) further down so we are much more part of the world where average inflation rate is at two per cent," he said.

Inflation excluding energy prices was still above headline inflation which was unacceptable, he said, adding global oil prices would remain at higher levels in the fiscal.

"Price and financial stability are needed to sustaining growth," he said.

On liquidity, Mohan said the growth in broad, narrow and reserve money was above expectations.

"Managing capital flows and liquidity will be the main challenge facing us for the rest of 2007-08," Mohan said.

He said global food prices remain at elevated levels and they were particularly a cause for concern.

For banks, he said there was an increase in their statutory liquidity reserve (SLR) portfolio which will help them better manage liquidity and mitigate balance sheet risks.

The deputy governor said despite complexities, the Indian economy has witnessed high economic growth, credit growth, price stability and financials were improving.