The Hindu Business Line : Opening door wider for MFs

As the RBI unveiled the Annual Credit Policy statement for 2007 - 08, it once again emphasised price stability and, therefore, inflation. The Policy focuses on maintaining growth momentum of the economy after placing safeguards against overheating through recent liquidity-tightening measures such as the increases in the Cash Reserve Ratio and the repo rates. As a result, key signaling rates such as the CRR, repo rate, reverse repo and Bank Rate have been kept unchanged. The Policy reposes confidence in the overall economy with GDP growth projection of 8.50 per cent, credit growth in the range of 25-26 per cent and M3 growth of 17-17.5 per cent.

The RBI has indicated that its inflation target for FY08 stands at 5 per cent and that for medium-term at 4-4.5 per cent. All these measures augur well to keep up the overall momentum in the economy as well as business confidence.

The central bank has given thrust to overseas investment by raising the limit on such investments by mutual funds to $4 billion from $3 billion.

There is a high probability of the increased limit getting utilised in the coming years much faster though the earlier limit was not. Also, individuals can better diversifying their portfolios by investing in overseas markets.

The individual's limit for such investments have been increased from $50,000 to $100,000. While these provisions provide a window of opportunity to invest overseas, it can also be seen as steps taken by the RBI to gradually move towards free capital account convertibility. The Credit Policy has reduced risk weight on housing loans up to Rs 20 lakh and loan against gold and silver ornaments to 50 per cent from the current level of 125 per cent. While this measure may not benefit a large section of the borrowers, it encourages banks to lend to the borrowers in the low loan value category.

Lastly, the interest rate on FCNR and NRE deposits has been reduced by almost 1.25 per cent, essentially discouraging foreign remittances through the banking system and also making the availability of overseas funds cheaper.

The Credit Policy has not given any negative surprise and is well balanced so as to maintain growth momentum and stable outlook going forward. Anyway, the RBI has various tools at its disposal to take measures at any time.

(The author is CIO, Birla SunLife Mutual Fund.)

More Stories on : Credit Policy | Economy | Mutual Funds

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
No tinkering

RBI restrains to surprise

Hands-off, deliberately

Opening door wider for MFs

Growth wins over inflation

Lull before the storm

Living with `impossible trinity'

An attempt at fine-tuning

No bark, no bite, only CAC

Emphasis on managing currency overvaluation

Leaving room for future action

A benign policy

Inflation control