"We are confident about containing inflation... We are worried about global oil prices...RBI will manage risks as they evolve," he said after announcing the bank's annual credit policy for 2006-07.
The Reserve Bank has forecast inflation to be in the range of 5-5.5 per cent this fiscal, the same as last year. Explaining the reasons behind the policy's move to keep key interest rates unchanged, he said the measure was aimed at bringing credit growth to a more sustainable level.
"This is a pre-emptive action. The interest rate structure will be assessed at the time of quarterly credit review in July," he said.
The Monetary and Credit Policy 2006-2007
RBI assured appropriate liquidity for legitimate credit requirements, consistent with price and financial stability. Asked about raising of provisioning for standard advances for home loans beyond Rs 20 lakh to one per cent, Reddy said it is in line with the Narasimhan Committee recommendations.
"We don't have experience about this. We will see the impact of this hike," he said. He said the central bank's policy was aimed at improving credit quality, besides leading to quantum jump in financial services penetration.