RBI monitoring economy, liquidity before policy action

Ahead of its mid-quarterly policy review, the Reserve Bank of India (RBI) today said it is monitoring the economic data and also the liquidity situation, and would take a forward-looking view while deciding on the policy action.

"We would monitor various data...and take a forward-looking view and take action," RBI Deputy Governor Shyamala Gopinath told reporters here when asked how the central bank plans to arrest the economic slowdown.

The central bank has raised key policy rates nine times since March 2010, to check inflation, which is hovering above 8%, much above the comfort level of 5-6%.

The RBI is scheduled to come out with mid-quarterly review of the policy on June 16.

The policy initiatives, however, will have to be taken with a view to containing inflation without sacrificing growth, which has started showing signs of a slowdown.

India's economic growth during January-March quarter of 2010-11 slowed down to 7.8% from 9.4% during the corresponding period the previous fiscal.

The GDP growth rate this fiscal is expected to moderate to about 8-8.5% as against the original estimate of 9%.

Referring to the issue of liquidity, Gopinath said there was no shortage of funds in the system.

"We are closely monitoring the liquidity situation. We are aware that the market is in repo mode, they are borrowing from us and that is something in line with our monetary stance," she said.

The Reserve Bank, Gopinath added, "does not see much of a stress in the call rates...The short term rates, but we are closely monitoring the situation. We are aware that advance tax payment will start a week later. We invariably monitor the situation".

On capital inflows, Gopinath said there was nothing that the central bank was "really concerned about", especially with regard to stability on the external front.

As a matter of policy, she said, Foreign Direct Investment (FDI) was welcome into the country.