Sunday, May 8 2005 12:05 Hrs (IST) - World Time -

New Delhi: Reserve Bank will maintain a close vigil on inflation as part of its objective to ensure price stability and growth in the economy.

RBI also sees no major impact of the recent hike in Fed rates of US on the domestic economy, the central bank governor Y V Reddy said yesterday (May 7, 2005).

Justifying the hike in reverse repo rate by 0.25 per cent in credit policy, Reddy also said that it has provided stability to the interest rate structure in the country.

On the rise in inflation noticed during the month of April, he said, "It is not fully unanticipated and hence not inconsistent with out inflation projection of 5-5.5 per cent anticipated for 2005-06."

However, he said, "Close vigil over prices will be maintained."

Barring uncertainties on the oil front, both with regard to international and domestic prices, annual policy projection on inflation remains valid at this stage, he added.

The WPI based inflation rose to 5.91 per cent during week ended April 23 from 5.64 per cent a week ago mainly due to rise in prices of tea, fruits, vegetables, furnace oil and metals.

On the interest rate scenario after the recent hike in interest rate by US central bank, he said, "The increase in the Fed fund target rate by 25 basis points to 3 per cent was widely anticipated by financial markets in India and abroad."

"The annual policy, among other things, had factored in the likely movement in the international interest rate scenario in the near term," he said.