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Bank deposits safe: PM Calls for caution: “The financial storm has shaken confidence in the system...We must be prepared for a temporary slowdown in the Indian economy...” New Delhi, October 20 Making a suo moto statement on the ongoing global financial crisis and its impact on India, the Prime Minister in Lok Sabha today said, “Some estimates projected GDP growth to decelerate to 7.5 per cent in the current year. The most pessimistic estimates place it at no less than 7 per cent. Our effort will be to minimise the negative effect of the financial crisis and once the global situation stabilises, the growth trajectory is likely to return to 9 per cent.” Explaining the reasons for the slowdown, he said, “The financial storm has shaken confidence in the system and precipitated a steep decline in stock markets. It has produced a sharp slowdown in economic activity, with the prospect of a prolonged recession in industrialised countries.” He admitted that the nation was experiencing the ripple effect of the financial crisis. The Prime Minister said, “The precise impact is difficult to estimate at this stage since the depth and duration of the global slowdown remained uncertain. We must be prepared for a temporary slowdown in the Indian economy.” He, however, assured, “Our first concern was to ensure the stability of our banking system. I am happy to inform the House that the Indian banking system is not directly exposed to the sub-prime mortgage assets.” He further assured that deposits in the public sector and even private sector banks were “entirely safe,” and added that “our banks, both in the public sector and private sector, are financially sound, well capitalised and well regulated. There should be no fear of a failure of any bank.” The Prime Minister took credit for anticipating this and taking adequate measures. He said, “In anticipation of a slowdown, we had stepped up public expenditure in the Budget presented on February 29, 2008. Our expenditure proposals were criticised at the time in some quarters, but I am happy to note that it is now widely acknowledged that increased public expenditure is an important solution.” “Our expenditure on education, health, NREGP, NRHM, AIBP and JNNURM and other programmes will, I believe, stand us in good stead in these difficult times,” he added. Defending the RBI announcement earlier in the day, the Prime Minister said, “It is broadly consistent with our objectives to control inflation which has already begun to moderate. The Wholesale Price Index (WPI) has declined in last three weeks. We expect a further reduction in the WPI in next two months.”
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RBI cuts repo rate by 1 pc Mumbai, October 20 The move came as a surprise as the banking industry was expecting cut in repo rate during the quarterly monetary review scheduled for October 24. Earlier this month, RBI had slashed the Cash Reserve Ratio (CRR) by 250 basis points. The RBI said the reduction in repo rate was part of the measures over the past one month to
augment domestic and forex liquidity. “India....is experiencing the indirect impact of the global liquidity constraint as reflected by some signs of strain in our credit markets in recent weeks. In order to alleviate the pressures and, in particular, to maintain financial stability, the RBI has decided to reduce the repo rate under the Liquidity Adjustment Facility (LAF) by 100 basis points to 8.0 per cent with immediate effect,” the apex bank said. PTI adds: “It (repo cut) will have beneficial effect on the interest rate structure, and in combination with the other steps to increase liquidity, will help to support economic activity and investment,” Prime Minister Manmohan Singh told Lok Sabha today. The reduction in rates would enable banks to borrow short-term funds from RBI at a cheaper rate and pass on the benefit to customers, mainly the industry, which could look forward to revisiting expansion plans. “Credit crunch that the world faces has also impacted us. We have taken a series of measures to infuse greater liquidity and to restart
the process of credit,” finance minister P Chidambaram said, hoping that the economy would grow by close to 8 per cent in 2008-09 despite the global slowdown.
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