The Reserve Bank of India (RBI) does not bring any changes in its key signaling rates in its annual policy statement for 2007-08. The apex bank seems to pave the way for more foreign exchange outflows and restricts the inflow to cut inflation.

It has set a challenging inflation target of 5 per cent for the current year and expects to woo further monetary tightening with the continuing breach. The RBI has also increased the amount of cash banks are required to keep with it by 150 basis point to 6.75 per cent of deposits. Also, it has given a push to repo rate as well which is now 7.75 per cent.

There will be no further tightening, says the RBI. The RBI has taken two broad measures to keep a close scrutiny on net foreign exchange inflows.

First, it is making hard efforts to discourage foreign currency inflows by tightening the norms for Non Resident Indians (NRIs) investments. Second, it has encouraged greater outflows by companies and individuals. Putting the same efforts to control inflation, the RBI has reduced the interest rates that banks can pay on NRI deposits by 50 basis points.

The ceiling on overseas investments by companies has been increased to 200 per cent of their net worth from 200 per cent and by mutual funds to $4 billion from $3 billion.

The RBI has also reduced its medium-term inflation goal to 4.0-4.5 per cent from 5 per cent. The inflation is believed to be ruling above 6 per cent since December 2006, which has actually persuaded the central bank to ponder over tightening the monetary measures during the period.

As such, the finance ministry has all praises for the RBI for taking significant steps and right decisions to control inflation without hurting economic growth rate.

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