"Since late 1990s, the average inflation has come down to 4-5 per cent... Hopefully, it will come down further as we are looking at 2-3 per cent," Mohan said at a workshop on 'Impact of Globalisation on National Firms' in New Delhi.
RBI has targeted 5 to 5.5 per cent inflation for this fiscal despite a high global crude prices. There has been a significant reduction in inflation, which averaged 7-8 per cent during late 1950s to 1990s, he said.
Inflation shot up to about 7 per cent last year mainly due to high oil prices and there were "reactions" from various quarters expressing concern on the high price level.
"The reactions suggest people feel that 7 per cent inflation is not acceptable. It seems people's expectation have increased," he said.
On the monetary side, he said interest rates are deregulated and now market determines the rates both on the deposit and lending sides.
"Interest rate should reflect the cost of money," he said, adding that RBI has no role to play on this.
Mohan said RBI is focussing on developing financial and capital markets. At present, there is fiscal stability, low NPAs and greater efficiency in financial market.
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