No inflationary pressure: Jalan

The idea is the market should know what the central bank is going to come out with. As far as possible, we would like to avoid surprises. There has been a convergence between what the markets expected and what was announced in the Credit Policy," said Bimal Jalan, Governor, Reserve Bank of India after announcing the Monetary and Credit Policy for 2003-04, in an interview with Business Standard.

This policy gives the impression that market sentiment is more important than the macro-economic reality?

I do not think so. In fact, you must have policies that are known to the market. Market expectations should be in line with the central bank's policies, not the other way round.

The idea is the market should know what the central bank is going to come out with. As far as possible, we would like to avoid surprises. There has been a convergence between what the markets expected and what was announced in the Credit Policy.

Earlier, you were cautious about what the markets expected. Today, you are saying you value market sentiment and, in some ways, feed it.

Yes, in some ways. We believe in a convergence between what the markets expect and what we want. For instance, we have taken into account market expectations on the foreign exchange side.

What are the basic concerns of this policy?

Global uncertainty, the slowdown in the growth rate and the rate of inflation. In a situation like this, we have to see that liquidity and soft interest rates are maintained in the market.

You haven't done much to control inflation?

I don't see an undercurrent of inflationary pressure. Even though the current rate of inflation is a matter of concern, if you look at the composition of inflation, there is no reason to worry. Take out petroleum, edible oils and mineral oils, the core inflation will be around 2.5 per cent.

Why did you cut the bank rate?

To boost business confidence.

And the CRR cut?

To ensure that credit demand, including that of the government, is met. Also, it is in tune with the stated objective of bringing down the CRR to 3 per cent. We are moving in that direction without causing any disruption.

Your take on the policy?

We expect the inflation rate to come down. The composition of inflation gives you the confidence that it will come down. There won't be any liquidity constraints.

But there are uncertainties. We felt that under the present circumstances, the fall in interest rates would induce greater confidence in the market.

Monetary and Credit Policy 2003-04: Complete Coverage

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