YV Reddy - Inflation at 3% is ideal

The Governor of the Reserve Bank of India (RBI), Dr Y.V. Reddy, has said that inflation in the country should ideally be brought down to 3 per cent to align it with global standards.

Speaking to newspersons at the College of Agricultural Banking (CAB), Dr Reddy said, "Our objective is to contain inflation to below 5 per cent in the current year and to keep it between 4 and 4.5 per cent in the medium term. But I tell you optimally we should be closer to 3 per cent over a period of time so that global integration is far smoother."

Financial Crisis

Earlier, delivering the valedictory address at an international workshop on 'Use of surveys by central banks', at the CAB, Dr Reddy emphasised that in a deregulation regime, surveys become more important. "With increased globalisation and liberalisation of financial system, informed decision holds the key to successful implementation of policy," he said.

Dr Reddy pointed out that in some economies, the control systems in financial and external sectors (regulation of fund and trade flows in an economy) were dismantled without putting in place appropriate monitoring mechanism. This led to a vacuum in information on ongoing economic activity.

"Deregulation must be accompanied by appropriate monitoring systems, or by surveys to make up for the loss of information due to removal of controls. In fact, many analysts hold the view that the financial crisis that hit the Asian economies about ten years ago was partly occasioned by inadequate data on the activities of the banking system."