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Macro-economic events under close watch, says RBI chief

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Dr Y.V. Reddy, RBI Governor, addressing a press conference in Mumbai on Tuesday. — Paul Noronha

Mumbai , July 26

THE overall stance for the monetary policy for the rest of the current fiscal will continue as set out in the Annual Policy statement of April this year, the Reserve Bank of India said in its first quarterly review of the monetary policy.

However, Dr Y. V. Reddy, RBI Governor, said, "We would like to emphasise that we will be watching the evolving circumstances and the reaction will be prompt and effective."

Addressing a press conference here on Tuesday, Dr Reddy said any change in policy would depend on macro-economic developments, including global uncertainty, oil prices, credit growth and the growing trade deficit. The inflation so far has been manageable, within the projected range of 5-5.5 per cent.

In favour of the continuation of the stance, he said it could be argued that the oil price hike had been managed well with a combination of monetary and fiscal measures.

The overhang of liquidity had been reduced with the increase in absorptive capacity of the economy.

While excess liquidity remained sterilised, visible liquidity in the market had reduced. Growth was within the projected range. Credit flow was getting broad-based and industrial growth had been revived after a long period of sluggishness.

The RBI Governor said the liquidity was manageable. Referring to the revaluation of the Chinese currency, he said,

"We cannot say what will be its exact impact. But if there is one, it will be in favour of India. If the yuan appreciates, our price will be more competitive. So, we can export more, particularly in the textile sector."

Dr Reddy said that the industrial growth and the credit growth were good.

The trade factor was also manageable. The next review of the Annual Policy statement will be undertaken on October 25 and will contain monetary measures as may be necessary.

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