India's Reddy Will Consult Government on Rupee Convertibility

Sept. 2 (Bloomberg) -- India's central bank will consult the government before deciding on implementing an advisory panel's report on making the rupee more freely tradable by 2011, Governor Yaga Venugopal Reddy said.

The panel in a July 31 report suggested easing restrictions on trading the rupee against other currencies in three phases over a five-year period that started April 1. The Reserve Bank of India said yesterday the report will be studied by an internal group, which will submit its report by Dec. 4

``For the current financial year, some specific measures have been listed,'' Reddy told a media conference in the southern Indian city of Hyderabad today. ``It is our intent to consider these measures immediately. Recommendations for this year need to be looked at carefully in the next few weeks and with appropriate consultations with the government.''

Prime Minister Manmohan Singh said March 18 his government will consider allowing the rupee to trade more freely, helping to boost overseas investment in the country. India currently allows the rupee to be traded only on the trade or current account.

``We can expect action will be taken sooner than later,'' Parthasarathi Mukherjee, treasurer at Mumbai-based UTI Bank, said in a phone interview today. ``The report has added a degree of certainty to India moving toward full convertibility.''

The advisory panel formed in March, headed by former Deputy Governor of the Reserve Bank S.S. Tarapore, submitted its report on July 31 to the central bank.

`Couple of Months'

The panel said measures taken should be reviewed after each phase, with ``comprehensive review'' in 2011 to chalk out the future course of action.

``We may be in a position to take a view straight away or in a modified way about what can be done,'' Governor Reddy said today. ``I expect that in the next couple of months, we should be able to take a considered view on these issues.''

Reddy said the central bank expects to contain inflation within its target of as much at 5.5 percent in the financial year ending March 31.

India's inflation was little changed at 4.91 percent in the week ended Aug. 19 from 4.92 percent in the previous week, the government said yesterday. Inflation was estimated to slow to 4.83 percent in the week, according to the median forecast of eight analysts surveyed by Bloomberg News.

`Can Contain Inflation'

``Based on all the evidence that we have, we believe that it would be possible to contain inflation for the current year in the range of 5 percent to 5.5. percent,'' Reddy said. ``There can be intra-year variations, mainly on account of some seasonal increase in prices or due to base effect.''

The Reserve Bank, which has raised is benchmark interest rate three times this year to curb price increases, said in an Aug. 30 report the economy faces the persistent threat of faster inflation fanned by higher fuel costs and an expanding economy. Industrial production grew more than expected in June, adding pressure on the central bank to increase interest rates at its next review on Oct. 31.

``I do think that the three rate increases this year are enough to tackle inflation by the end of March,'' UTI Bank's Mukherjee said. ``The central bank is keeping a close watch on oil prices, which is what is needed at this point in time.''

Reddy today reaffirmed the central bank's forecast that India's economy, Asia's fourth-largest, will expand as much as 8 percent this financial year, following 8.4 percent growth in the year ended March 31 and 7.5 percent in the previous year.

``Our current assessment is that we will have growth of 7.5 percent to 8 percent in the current fiscal year,'' Reddy said. ``We don't see any need for a review of the growth projection.''

India's economy grew faster than 7 percent in the three months ended June 30 from a year earlier, Finance Minister Palaniappan Chidambaram said Aug. 31. It grew 9.3 percent in the quarter ended March 31 and 7.5 percent in the previous three months, according to government data.