The Reserve Bank of India said on Tuesday that current interest rates were appropriate and it would maintain 'status quo' in monetary policy to accord stability and provide conducive macroeconomic environment for growth.
"On the current assessment, interest rates are appropriate," RBI Governor Y V Reddy told reporters after unveiling the Monetary and Credit Policy for 2004-05 in Mumbai.
The central bank would maintain status quo in conduct of monetary policy and pursue interest rate environment that was conducive for growth, macroeconomic and price stability, he added.
It was essential to recognise that interest rates in major economies are likely to harden while the adjustments in currency imbalances would continue to take place, he added.
On the volatility in the financial markets including that of foreign exchange, Reddy said RBI has been able to avoid any excessive undesirable volatility.
The exports, imports and trade deficit are expected to grow in 2004-05 but RBI expects to have comfortable situation on the current account, aided by remittances and software exports, he added.
RBI would give priority to improvement of credit flow to small, medium size units, agriculture and infrastructure, the governor said.
The relation with the government stands on the basis of autonomy in operational matters, harmony on policy issues and co-ordination for structural reforms, Reddy said.
Commenting on the global developments, Reddy said the recovery appeared more sustainable and there was greater resilience in emerging economies.
Oil prices seem to persist at the current high level though they could move sharply in either direction. The geopolitical uncertainties impacting the international oil economy do not show any sign of waning, he added.
While there are significant positive indications of economic recovery, RBI would take into account uncertainties and risks which could emerge on this front, he added.
In particular, the policy would factor in the prospects of a significant trade deficit, accelerated exports and imports.
This would have impact on the current account, which as in the past, would be compensated by the remittances from Non-Resident Indians, Reddy said.
The policy would be prepared for the persistence of large capital flows, he added.
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