Global slowdown unlikely to hit country’s financial sector: RBI

“In our assessment, the Indian financial sector is likely to be less affected by the contagion than most other EMEs, in respect of first-round or direct effects,” Reddy said. Like most of the rest of the world, India has by and large experienced benign inflationary conditions, averaging around 5.2 per cent since fiscal 2004-05. “However, at this juncture, both domestic output and prices are under some pressure due to the recent global developments with regard to the prices of food, fuel and metals, and the turbulence in the financial markets,” Reddy said.

Reddy admitted that inflationary pressures have turned out to be more than the expectations and indicated that some steps may be taken in the April 29 annual credit policy to rein in soaring prices. “We anticipated some inflationary pressures but they turned out to be more. We have to see that aggregate demand management is consistent with supply side initiatives,” he said.

“We expect to make an announcement on April 29,” he said. “Definitely, the level of Inflation is unacceptable to us. It is higher than our tolerance limit.” The regulator is slated to come out with its annual credit policy on April 29, which many believe would tighten money supply to tame the inflation rate that soared to a 40-month high of 7.41 per cent towards the close of last fiscal.