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Not guided by Fed policy: Reddy

business Updated: Sep 23, 2007 23:30 IST

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The US Federal Reserve's interest rate cut is a "relevant input" for India's central bank, but domestic factors still outweigh global ones, governor Yaga Venugopal Reddy said in an interview with the BBC.

India is better insulated from any slowdown in US economy compared with other emerging economies, Reddy said in the interview, while adding that he was happy that inflation expectations were benign.

"As far as the Indian economy is concerned, while we're having increasing linkage with the global economy and the global financial markets, we're essentially a domestic economy-dominated system," he told BBC's India Business Report, according to a transcript released before the interview was broadcast.

That means that the Reserve Bank's major considerations in setting policy relate to domestic developments. As India became more integrated with the world, increasing weight is given to global developments, particularly in the United States, he said.

The US Federal Reserve last week cut its federal funds target rate by 50 basis points to 4.75 per cent. The Reserve Bank of India has raised its main short-term lending rate five times since last June to 7.75 per cent, with the last increase coming in March, to contain inflationary pressures and check sharp credit growth.

On inflation, Reddy reiterated that the central bank's medium-term goal was to get it down to 4.0-4.5 per cent, and then eventually to 3 per cent to help the economy integrate with the rest of the world.