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Jalan pegs 2002-03 inflation at 4%

Rediff Money Desk

Announcing the mid-term review of the Monetary and Credit Policy for 2002-03, on Tuesday, Reserve Bank of India Governor Bimal Jalan said that India's inflation will remain benign at around 4 per cent, which is in line with the expectations in the annual policy statement of 2002-03.

Jalan said inflation in the current year is more evenly spread across major sub-groups. The annual inflation, on a point-to-point basis, was 2.8 per cent on October 12, 2002 as against 3.0 per cent a year ago.

While the deficiency in rainfall caused pressure on the prices of many agricultural commodities, the domestic inflation outlook still looks comfortable.

Elaborating on the debt management strategy, the Governor said that because of the existing liquidity conditions in the market and low inflation, the government has been able to borrow at a substantially lower cost during 2002-03.

Referring to the substantial reduction in interest rates, the Governor said: "This combined with a benign inflationary environment, is a welcome development which augurs well for industrial recovery and sustained growth in the economy."

Jalan further said: "With the outlook for industrial growth and exports during the year 2002-03 remaining positive and a moderate level of global inflation, the inflationary outlook on the domestic economy continues to be favourable."

The Governor was confident that the softer interest rates prevailing in the economy in the recent period, is sustainable in the medium/long term if the rate of inflation continues to be low. An important objective of monetary, fiscal and supply management policies must be to ensure that there is no resurgence of inflationary pressures in the economy, he added.

Jalan explained that in the current environment of low inflation, unreasonably wide spreads could adversely affect the overall credit portfolio of banks. Furthermore, very wide spreads provide opportunities for non-transparency. In order to ensure appropriate pricing of loans, banks are encouraged to review both their prime lending rates and spreads and align spreads within reasonable limits around PLR subject to approval of their boards.

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