Price stability tops agenda: Reddy

Reserve Bank of India Governor Y V Reddy said price stability remains its top priority as inflation breached the central bank's tolerance limit of 5 per cent.

Large segments of poor people tend to reap the benefits of high growth with a time lag, while the rise in prices affects them instantly, Reddy said, while addressing the International Symposium on Globalisation, Inflation and Monetary Policy, held in Paris.

In the Indian context, considerable weight is accorded by RBI to price and financial stability, while recognising its twin objectives of growth and stability.

"Further, we recognise the limited capacity of the poor to bear risks that may occur in the real sector by virtue of developments in the financial sector, in the absence of social security mechanisms and public safety net," he added.

The wholesale price-based inflation rate breached the 5 per cent-mark for the first time in 10 months, mainly driven by higher prices of food items like fruits, vegetables, milk and cereals along with some manufactured goods.

The inflation rate stood at 5.02 per cent for the week ended February 23, up from 4.89 per in the previous week. It was at 6.02 per cent a year ago.

The governor said the central bank has successfully articulated a self-imposed tolerance limit of 5 per cent on headline inflation and had commenced monetary tightening in October 2004 to deal with early signs of possible overheating.

The bank raised repo rate seven times (25 basis points hike every time) till March 2007. It also increased cash reserve ratio (CRR) ten times since September 2004 till date to suck excess liquidity on account of surge in the capital flows.