Concerned over ballooning inflation, the Reserve Bank of India on Monday hinted at tighter monetary measures in its forthcoming credit policy, saying it was in "full readiness" for appropriate action to contain prices.
"Inflation is unacceptably high...We are very, very concerned...We are in full readiness to take appropriate action to contain inflation," said, a month ahead of the credit policy, to be announced on April 29.
Inflation spiraled to 6.68 per cent, much beyond the RBI's comfort level of five per cent, prompting Finance Minister P Chidambaram to stress that the government would take all measures, monetary, fiscal and supply side, to combat it.
Attributing the sudden spurt in inflation to a surge increase in prices, mainly of food, fuel and metals, Reddy told reporters that some inflationary pressures were expected when the central bank reviewed its monetary policy in January.
"Inflation has (now) turned out to be well more than anticipated," Reddy said on the sidelines of a function here.
The RBI was "very concerned" about the impact of recent spurt in prices and inflationary expectations, Reddy said, adding that the government was already taking some measures on the supply side.
"This would help to contain inflation," he said.
While RBI was in full readiness to take appropriate action to contain inflation, "any decision has to be taken carefully as the situation is extremely complicated," he said.
The RBI Governor Y V Reddy said the central bank was confident in terms of growth and stability and added the country would continue to be one of the best-performing economies in the world in the months ahead.
"RBI is confident (on economic growth). In terms of growth and stability, India will continue to be one of the best-performing economies in the world in the months ahead," he said.
On liquidity management, Reddy said there were many instruments available to contain liquidity. "We will not hesitate to use those instruments," he said.
On credit derivatives, there have been reports of dialogues between select banks and corporates on the subject and the apex bank has also received communications from some corporates, he said.
The RBI had issued comprehensive guidelines on derivatives some time back.
"As long as (these) guidelines are followed in letter and spirit, there is no cause of dispute," the RBI Governor said, adding that "as per our current assessment, the RBI does not anticipate any systemic problem (on account of derivatives)," he said.