Speaking on the much heated debate of fuel and energy prices, the RBI governor said that high level of energy prices may not necessarily be temporary and the economy and the society should adjust to the new reality of high and volatile energy prices. “The price pressures on account of oil are not entirely unanticipated, but they have been magnified in the whole sale price index figures last Friday,” Reddy iterated.

The bond market feels that Reddy meant an increase in interest rates, but not an immediate and harsh one. “Since RBI takes pre-emptive action and has already moved in anticipation of higher inflation, there was no panic reaction to the governor’s speech,” said Harihar Krishnamoorthy, head of treasury, Development Credit Bank.