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Bank rate, CRR kept unchanged Mumbai, October 26 Unveiling the apex bank’s busy season credit and monetary policy, RBI Governor Yaga Venugopal Reddy said inflation was likely to be around 6.5 per cent as against the earlier projections of 5 per cent this year. He, however, added that the Indian economy would be among the fastest growing economies of the world. Assuming that there would be no further major supply shock and liquidity conditions remain manageable, the point-to-point year-end inflation based on WPI for the year 2004-05 could be placed around 6.5 per cent, Mr Reddy said. According to the RBI, the annual wholesale price index inflation rose from 4.6 per cent in March-end to 8.3 per cent in August-end. However by October 9, it had come down to 7.1 per cent following fiscal and monetary measures to contain the rise in prices without hampering growth prospects, the apex bank said. The apex bank attributes the rise in inflation to external factors and supply shocks, adding that “calibrated” measures would be undertaken to stabilise inflationary expectations. The RBI said it would pursue an interest rate environment that was conducive to macro-economic growth and price stability and maintaining the momentum of growth. Mr Reddy said growth prospects for the Indian economy were lower by 0.5 per cent due to the poor monsoon and rising commodity prices in the international markets. “GDP (gross domestic product) growth in 2004-05 is placed in the range of 6 to 6.5 per cent as against 6.5-7 per cent envisaged earlier under certain assumptions.” According to the RBI, the farm growth target of 3 per cent will not be met, while the trade deficit might widen on higher crude prices. It also expects the deficient rains to hit farm growth this fiscal. The RBI had forecast growth between 6.5 and 7 per cent in the fiscal year 2004-05 in May last on the assumption of the normal monsoon, sustained growth of the industrial sector and good performance of exports. Under its new monetary policy, the RBI has left the bank rate unchanged at 6 per cent. The cash reserve ratio (CRR) has also been left untouched. The bank has discontinued the seven-day and 14-day repo and reverse repo auctions, while asking banks to give more loans to small farmers. On the forex reserves front, the bank points out that while the reserves are at a comfortable position at present, they may go slow in FY05. However, it has predicted higher foreign direct investment (FDI) inflows. Interest Rates Up Meanwhile, the RBI raised its overnight repo rate today for the first time in more than four years. The apex bank said in its mid-year policy review that it would raise the fixed repo rate 25 basis points to 4.75 per cent from Wednesday. Further increases would be made, if required, the bank said. The RBI, however, left the bank rate at a low 6 per cent to foster investment, Mr Reddy said. When some changes
were The repo rate had been at 4.5 per cent since August 2003 when the central bank cut it by 50 basis points. The RBI however, expressed continued hopes in a positive business climate. Various business expectation surveys, including the RBI’s own assessment, points to reasonable air of optimism regarding growth as corporate results continue to be good. Bank ownership The RBI has announced that it would shortly issue a second draft on policy framework for ownership and governance in private banks. The bank had issued the first draft guidelines earlier this year which proposed that no single entity or group of related entities should hold a stake of more than 10 per cent in a private bank. Under the first draft guidelines, foreign banks with a presence in India would not be able to hold more than 10 per cent in a private bank while private banks would not be allowed to hold more than 5 per cent in each other. |
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Highlights * GDP growth pegged down to 6-6.5 per cent for 2004-05 * Inflation pegged upwards at around 6.5 per cent * Money Supply (M3) growth to be 14 per cent in 2004-05 * Bank Rate unchanged at 6 per cent * Repo rate hiked by 0.25 per cent to 4.75 per cent * Housing finance upto Rs 15 lakh under the priority sector * Ceiling on NRE deposit rates hiked by 0.5 pc over Libor *
FCNR (B) deposit rates can be fixed monthly * Minimum tenor of term deposits lowered to seven days * PSU banks asked to step up loans to small farmers * Private banks asked to attain 20-25 pc growth in farm loans * Loan limit for SSIs doubled to Rs 1 crore * RIDF fund of Rs 8,000 crore set up * Minimum maturity of commercial papers lowered to seven days * Capital indexed bonds from next fiscal * Market stabilisation scheme ceiling at Rs 80,000 crore * Time limit for export realisation for EOUs eased * Forward contracts booking by exporters/importers eased * New NPA norms for FIs * ARCs minimum capital up at 15 pc of assets or Rs 100 cr * CBDT allowed to refund up to Rs 25,000 through ECS
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