The Hindu Business Line : `Stable rates will facilitate execution of capex plans'

Mumbai April 27 Mr O.P. Bhatt, Chairman, SBI, has said that the RBI's policy stance emphasises price stability and containing inflationary expectations. Keeping rates stable at this juncture when the underlying growth momentum is strong, will facilitate the execution of capex plans of corporates in industry and infrastructure. Given the breadth of the manufacturing sector growth and the ongoing investment and proposed capacity expansion in the economy, we welcome RBI's decision to keep the rates unchanged while ensuring appropriate liquidity to meet credit needs.

Against the extraordinary inflow of foreign exchange seen in recent months, which has fuelled money supply in the economy, RBI's decision to ease forex outflows is a step in the right direction. While making NRI deposits less attractive, RBI has liberalised forex outflows for corporates, BPOs and individuals besides easing norms for companies' investment in JVs and wholly-owned subsidiaries. At the same time, the flexibility in cancellation and re-booking of forward contracts, increased financial support to corporates for overseas M&A activity, facility for hedging not only by corporates but also SMEs and individuals will go a long way in supporting the Indian MNCs.

Mr K.V. Kamath, MD and CEO, ICICI Bank: In line with market expectations, the RBI has kept key policy rates unchanged. At the same time we must continue to be prepared for monetary measures on a need basis given the medium term inflation target that has been articulated. The policy also contains several measures aimed at promoting outward investment from the country. These measures are in line with the liberalisation of outward investment policies and provide a level playing field to Indian firms relative to their foreign competitors. Additionally, the measures will help achieve a balance between capital inflows and outflows.

The policy also contains several positive developments for the banking system and the financial markets in general. Permitting banks to engage in credit default swaps transactions is a welcome move and will help banks manage their credit risk. At the same time, businesses have been given enhanced ability to hedge currency risk.

Mr V. Sridar, Chairman and Managing Director, UCO Bank: The credit policy is comfortable as far as the banks are concerned. The move to reduce the risk weight on housing loans is a necessary and timely move. Since the risk weight has been reduced for housing loans up to Rs 20 lakh there is probably an incentive for banks to reduce the rates in that segment.

Mr T.S. Narayanasami, Chairman and Managing Director, Indian Overseas Bank: It is a progressive monetary policy for the banking sector. Risk weightage, which has been reduced for housing loans up to Rs 20 lakh and also for loans against gold and jewellery are good features. It is a big boost for households in rural areas.

Mr Vishwavir Ahuja, Managing Director and CEO, Bank of America, India: The bank rate, reverse repo rate and repo rate have been kept unchanged. GDP growth projection for 2007-08 is maintained at a healthy 8.5 per cent. RBI believes the lagged and cumulative effects of monetary policy measures on aggregate demand will enable inflation to be contained around five per cent in 2007-08. However, with headline and core inflation remaining above the target range, I do not rule out another 0.5 percentage point CRR hike by mid- 2007.

Mr V.P. Shetty, Chairman and Managing Director, IDBI Bank: Policy continues to emphasise the maintenance of price stability. The medium term expectation for inflation is 4-4.5 per cent. To meet this target, the RBI may have to resort to tighter monetary measures to manage the demand side.

The RBI Governor's policy statement today gives greater clarity to his objective - of supporting growth while controlling inflation. The decision to keep rates unchanged at this stage, which was on expected lines, is probably because the impact of the previous hikes needed more time to make its impact.<137>