RBI not to force the pace of reforms

Reserve Bank of India Governor Y V Reddy today ruled out speeding up the pace of external financial sector liberalisation even as the economy is on a growth path.

Speaking at the Global Conference of Actuaries in Mumbai, organised by the Actuarial Society of India, Reddy admitted that pressures have significantly intensified for accelerating the pace of external financial liberalisation but "it is essential to take into account risks associated with it while resetting an accelerated pace of a gradualist approach".

The governor emphasised that the existing international financial architecture was not adequate to prevent or mitigate domestic and external effects of a financial crisis in India.

"The issue of setting the pace of financial liberalisation revisits the issue of trade-off between sustained growth and a growth rate that could potentially turn volatile and unstable," he said.

According to him, while it is necessary to add to the pace of growth, it is also equally important to minimise the risks of instability, and the experience shows that more than desirable pace of financial liberalisation was often followed by financial instability and crises.

Stating that high growth coupled with low inflation is indeed a central banker's dream, Reddy said he was happy, considering the growth and inflation numbers in India were now.

"However, currently almost every central banker in this globalised world keeps wondering whether the night ahead will continue the dream run and if so, when will it run out of steam," he said.

The perceived risks arise mainly out of global imbalances and outlook for oil prices, particularly in the light of emerging geo-political situation.

Most market participants seem to sense these risks but this sentiment does not appear to be reflected in the pricing of risks, he pointed out.

Calling upon the bank to keep a close tab on risk factors, Reddy said : "We need to consciously recognise the risks that may lie within the fiscal arena, corporate balance sheets, financial intermediaries and possibly households."