Stating that with global financial markets having become much more uncertain than before, Mr Reddy conceded that while it was not entirely unanticipated, however, the intensity was not predicted nor was the duration expected... The outlook is far more uncertain now for global situation than before,” he observed.
“I think we will pay considerable attention to the possible recession in the US and the global financial turmoil emanating from the US subprime mortgage crisis and the monetary policy statement will take note of it,” he said.

Volatile liquidity

Mr Reddy, who delivered the convovation address at the Indira Gandhi Institute of Development Research (IGIDR) here, reiterated that the central bank would continue to be sensitive to the high crude and food prices. “These are essential commodities that have great impact on inflationary expectations”, he pointed out.

Observing that high food and crude oil prices globally were, in a way, anticipated and “the pressures have been flat,” Mr Reddy said while liquidity had been volatile in the past, one, however, had to “take a long-term view and not a contextual view,” adding that liquidity had been sometimes quite tight and sometimes rather very easy.
Incidentally, RBI aims to keep inflation close to five per cent this fiscal and around three per cent in the medium term.

Inflation based on wholesale prices was at 3.79 per cent for week ended January 5, far less than peak of 6.69 per cent in January-end 2007.
However, the price index could shoot up if the government allows state oil firms to raise fuel prices.