Review to address inflation: RBI

Central bank not to issue OMO calendar for Q2, will conduct operations as required.

The Reserve Bank of India (RBI) will look at the complete picture of growth before it presents the mid-term review of monetary policy on October 27, Governor D Subbarao on Thursday said.

“We will do what in our judgment is best for the economy. We will take into account the need to support recovery and to adjust inflationary expectations,” Subbarao said at a press meet after central bank’s board meeting here.

In the first quarter review of the policy, the RBI had forecast a growth rate of 6 per cent for 2009-10 (April-March) with an upward bias and expects inflation to rise to 5 per cent by March-end.

The central bank would ensure that economic recovery was supported and would address inflationary expectations at the policy review, Subbarao said. “The profile of growth, the profile of recovery and inflation will be considered in the forthcoming monetary policy,” he said.

Subbarao also said that RBI would be proactive in ensuring sufficient liquidity and demands of private sector for credit.

“We will manage to the best of our ability and will ensure that markets function in an orderly manner,” he said.

He also said that the central bank would not release a calendar for open market operations (OMO) during October-March. Instead, it would conduct such purchases as and when deemed necessary, he added.

“We will manage liquidity proactively so that government borrowing plan goes on smoothly and private credit is met to the extent it grows,” he said.

The central bank did not have any target for purchases through the open market route for the period, unlike in the April-September period when it had offered to buy Rs 80,000 crore of government bonds, he said.

“It won’t be an arithmetic progression of the balance amount in the second half,” Subbarao said when asked if the balance amount would be purchased in the second half of the current financial year.

RBI bought only Rs 57,500 crore of bonds through OMO in the first half.