Mumbai: Speaking at an investor seminar in Mumbai today, Dr Rakesh Mohan, deputy governor, Reserve Bank of India, said the that the RBI would take all possible monetary measures to maintain price stability, and respond swiftly to bring down inflation.

Mohan said "Maintenance of macroeconomic stability and financial stability is important to us," and the RBI would focus on liquidity management, as a reasonable amount of cutting back of excess cash was needed to achieve desired monetary growth.

"We will take all possible monetary actions to maintain price stability and will respond swiftly to bring inflation down."

In early February wholesale prices, touched a two-year high of 6.73 per cent, and is currently hovering at 6.10 per cent, above RBI' target of between 5 and 5.5 per cent.

The government has repeatedly cited supply-side constraints for fuelling inflation particularly for farm products. India's GDP is slated to grow to an estimated 9.2 per cent in the current financial year, and at a similar rate in FY 2007-08 as well, the highest in nearly two decades.

Mohan said, "with this kind of buoyant growth and expectations of growth the flow of capital has increased tremendously and therefore there has to be a reasonable degree of sterilisation in order to maintain the monetary growth that we would like to have."

High growth expectations from the Indian economy have generated substantial foreign investment in the Indian the stock markets pushing up the rupee against the dollar, requiring the RBI to perform a tight balancing act of intervening by buying up dollars and adding to the money supply, even as it has been tightening money supply by raising interest rates and repo rates since October 2006.

Between November 2006 and January 2007, RBI had bought $8 billion and to prevent the rupees it sold from going in to circulation it has resumed the sales of market stabilisation bonds after a gap of more than 18 months to absorb the funds.