The Reserve Bank of India on Wednesday said it has reasonable tools to tame inflationary expectations, which along with short supply of food items, is fuelling price rise.
"We have reasonable framework for anchoring (inflationary) expectations," RBI Deputy Governor Subir Gokarn said at a function of economic think-tank ICRIER in New Delhi.
Inflationary expectations refer to the mindset that inflation is going to rise in future, which pushes current prices upward more than it would have been otherwise.
Later, Prime Minister's Economic Advisory Council Chairman C Rangarajan told reporters that the RBI has to watch price behaviour before they take a monetary decision on policy rates.
In its quarterly monetary review, the RBI had asked banks to keep more cash with it. It had hiked cash reserve ratio (amount banks must keep with the apex bank) by 75 basis points to 5.75 per cent, which would suck out Rs 36,000 crore (Rs 360 billion) from the system and help to tame inflationary expectations.
However, it kept both short term lending and borrowing (repo and reverse repo) rates intact. These rates, technically also called policy rates, have more direct bearing on interest rates of banks.
Gokarn said infrastructure in the country requires huge investments, which will come mainly from outside the country because of constraints on government resources.
If that happens, there would be significant pressure on managing capital flows, he added.
