RBI vigilant to global situation, says Reddy

The Reserve Bank of India (RBI) would use monetary policy to address longer-term structural supply bottlenecks, as persisting impact of supply shocks on prices of commodities and services can build inflation expectations.

In an address at the Sveriges Riksbank at Stockholm in Sweden, RBI Governor Y V Reddy said, "While the preferred instruments are indirect, and varied, there is no hesitation in taking recourse to direct instruments also, if circumstances so warrant."

The RBI will remain vigilant and work productively to ward-off any adverse effect of global uncertainties on the growth and stability in the domestic economy, according to Reddy. "In the current environment, monetary policy in India would continue to be vigilant and pro-active in the context of any accentuation of global uncertainties that pose threats to growth and stability in the domestic economy," Reddy said.

The domestic outlook continues to be favourable and would dominate the dynamic setting of monetary policy in the period ahead. It is important to design monetary policy such that it promotes growth by contributing to the maintenance of financial and price stability.

Accordingly, while the stance of monetary policy would continue to reinforce the emphasis on price stability and well-anchored inflation expectations and thereby sustain the growth momentum, contextually, financial stability assumes greater importance at the current juncture, Governor Reddy said.