Calling the present level of inflation unacceptably high, Reserve Bank of India Governor Y V Reddy on Monday said that the Central bank is ready to take steps to cool prices.
"Any decision to act has to carefully assess this extremely complex situation... We have a range of instruments available with us to manage liquidity... and we do not hesitate in using them. Liquidity management has to be consistent with monetary policy and with management of aggregate demand," Reddy told reporters after addressing a lecture.
Despite the rise and fears of growth slowing in 2008-09 as managing inflation takes priority over the rise in economic activity, Reddy said: "The RBI believes that in terms of growth and stability India will continue to be one of the best-performing economies in the months ahead."
Attributing the recent spurt in inflation to a rise in the prices of food, fuel and metals -- with steel getting a special mention -- as also "delayed adjustment" in some prices like petrol and diesel, Reddy said the government's efforts on increasing supply will be helpful.
At the same time, he said, the increase in global price in relevant items is far higher than what has happened in India.
Inflation rate touched a 13-month high of 6.68 per cent in the middle of March, exceeding the RBI's comfort zone of 5 per cent.
The government has already lowered import duty on some commodities and has also resorted to banning exports.
"The RBI is very, very concerned about the impact of inflationary expectations. We have to make sure that aggregate demand conditions continue to be consistent with supply-side initiatives," Reddy said.
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