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Tuesday, December 29, 2009

RBI says focus on managing inflation, growth

The focus of India's monetary policy is shifting to managing recovery and containing inflation from one concentrated on fostering growth after the global downturn, a deputy governor at the Reserve Bank of India said.

"The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation," Shyamala Gopinath said in a speech delivered in Bangalore on Monday.

The Reserve Bank released her speech on Tuesday. The comments, which reinforced market expectations of monetary tightening in January, pushed the 10-year benchmark bond yield up 3 basis points to 7.67 percent. It had closed at 7.68 percent on Thursday. Financial markets were closed on Friday and Monday for holidays.

"Surely they will tighten policy, but the question is whether they will due it before the January policy or at policy," said Piyush Wadhwa, senior vice president at ICICI Securities Primary Dealership.

The next scheduled policy review is on Jan. 29, but the central bank can change policy at any time.

Gopinath's comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, who said the January policy review would focus both on growth and inflation, instead of the previous policy focus on growth.

Most economists polled by Reuters early this month expected the Reserve Bank to raise banks' cash reserve ratio or the proportion of deposits that banks' must set aside with it as cash by the end of January.

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