Concer-ned over the continuing inflationary pressures, a Reserve Bank report on Thursday said that the primary objective of the monetary policy would be to ensure price stability, amid expectations that the central bank would raise short-term rates in its July 27 monetary review.
“Inflation pressure will remain”, the RBI said in its Currency and Finance Report 2008-09, and pointing out that “important challenges for the monetary policy authorities would be (to) ensure financial stability, although price stability sho-uld continue as the primary objective of the policy”.
The central bank said the main challenge it currently facing is adopting a “calibrated exit” from the unprecedented monetary accommodation.
RBI’s statement comes ahead of the monetary policy review, scheduled for July 27, during which the central bank is expected to take steps to contain inflation, while ensuring adequate liquidity to the productive sectors of the economy.
After the deepening of global financial crisis, RBI had cut its key rates to provide funds to the cash-strapped financial system. However, after the recovery, it started tightening policy to tame rising inflation since late last year.
The Reserve Bank had raised the key policy rates by 25 basis points each in March and April. It hiked the lending and borrowing rates (repo and reverse repo) to 5.25 and 3.75 per cent respectively. — PTI