"Several central banks have raised interest rates globally. Our monetary policy cannot be out of sync with the policies of major economies...We are now in sync with global policies," RBI Governor Y V Reddy said.
He said that global factors were now accorded greater weightage. "We wanted to put an end to uncertainty regarding the monetary policy."
The RBI hiked repo and reverse repo rates by 0.25 per cent on Thursday in a bid to contain inflation but this move has triggered hike in interest rates by commercial banks particularly the home loan rates.
On the liquidity situation, he said there was a significant turnaround in the liquidity conditions. The Reserve Bank has hiked reverse repo rates by 0.25 per cent twice so far this year to suck out excess liquidity in the market in a bid to check money supply thereby controlling prices.
He said the government's objective is to contain inflation within the projected 5-5.5 per cent in RBI's annual policy statement. "Our objective is to contain inflation within 5-5.5 per cent... in medium term we would like it to be below 5 per cent," he said.
On the stock market, he said, " We have no view on stock market price." He said that the government only sees if there is any excess volatility in the stock market so that there is no spill over to the forex market.
"It is satisfying that there has been no spill over
It is a sign of maturity of the financial market," he said.
Elaborating, he said the government should also watch that the banking system is not "unduly exposed" and added that there was every evidence to show to the contrary.
"There is no question of advising banks on margin issue as it is an issue between banks and borrowers," he said. Moreover, he said that there has not been any issue of actual settlement either.
The market expect that abundant liquidity will unbind on their own, he said, adding liquidity has to be fine tuned to the market requirements. He also said that rupee weakness was not related to the stock market.
Referring to the borrowing situation, he said the oil bonds issue did not form part of the government borrowing programme and that the Central bank was of the view that the borrowing programme can be conducted smoothly.