Rise in asset prices a concern: RBI

A greater pace of rise in asset prices continued to remain a concern, but its implications for the inflationary process has, however, remained contained, the Reserve Bank of India (RBI) has said.

"A greater pace of rise in asset prices continued to remain a concern from the stand-point of macroeconomic management, notwithstanding some moderation in Q4 2009-10... their implications for the inflationary process, have, however, remained contained," RBI said in its annual report for 2009-10 released on Tuesday.

Higher asset prices generally tend to fuel the demand pressure in the economy and thus, contribute to inflationary pressures. There was a sharp increase in asset prices, particularly equity prices, on the back of a strong domestic (economic) recovery along with resumption of FII inflows and ample market liquidity, the apex bank maintained.

Stock prices displayed a continuous upward momentum throughout the year except for some occasional corrections caused by global financial market shocks stemming from the Dubai World default and Greek sovereign debt crisis, it said.

Housing prices witnessed a correction during the global financial crisis, but there was a sharp rebound in the subsequent period, the RBI said.

"During the phase of economic recovery, a sharp increase in equity prices helped in improving the investment climate and enabled corporates to raise funds through IPOs and private placements," the apex bank observed.