Business Daily from THE HINDU group of publications
Wednesday, Apr 30, 2008
ePaper | Mobile/PDA Version | Audio
Business Daily from THE HINDU group of publications Wednesday, Apr 30, 2008 ePaper | Mobile/PDA Version | Audio |
|
|
|
|
|
|
|
Opinion
-
Editorial Inflation control and beyond Apart from the policy thrusts that joust with inflation, the review tries to make financial products more efficient and effective. At one level, the Reserve Bank of India’s monetary policy statement for 2008-09 justifies popular notions of an inflation basher. In less than a month, it has attempted to control excess liquidity by raising banks’ reserve requirements twice over. On Tuesday, the RBI hiked the CRR by 25 basis points to 8.25 per cent. This follows an earlier hike that sucked out Rs 18,500 crore from banks. In its policy exegesis the central bank stresses the need to anchor infla tion to around 5.5 per cent or, better still, 5 per cent — its tolerance level. Yet Dr Reddy has stayed his hand on other money supply reducing buttons to target a 17 per cent cut-off. The macro-economic review makes it clear why. Growth in the current fiscal is estimated at 8-8.5 per cent, against 8.7 per cent in 2007-08 and a vigorous 9.6 per cent the year before. Bank credit has decelerated, “as anticipated”; nowhere has the RBI’s tight money policy been more successful than in the decline in the rate of growth of personal loans by more than half, from 30.6 per cent, with housing and real estate loans also halving from 25 per cent. To that extent, the central bank can claim to have accomplished its mission of cooling the overheated retail demand that it had warned could derail the economy. As it turned out, its interest rate hardening worked temporarily, as supply-side factors fuelled another round of inflation after mid-2007. The CRR hike is the RBI’s modest contribution to the essentially fiscal war on inflation but just how much it will help rein in the excess liquidity that has its origins in the continued surge of capital inflows remains to be seen. The annual policy is not just about inflation control, however. At another level, it attempts to adjust regulatory policy to make financial products more efficient. Thus it liberalises outward investments further by raising the limits of what companies can spend to acquire energy and natural resource assets overseas, though it does not spell by how much. Still, such a move should have a salutary effect on the swelling foreign exchange reserves that are imposing some costs on the economy. For the same reasons, the RBI extends the period of repatriation of export proceeds by export-oriented units by another six months. In its most innovative scheme to increase flow of credit to priority sectors, the RBI has enabled the securitisation of the priority loans market by permitting scheduled banks to buy priority loan assets from regional rural banks. The new policy statement, therefore, goes beyond the inflation-fighting perspective of old towards novel financial growth and liberalisation. Cash reserve ratio hiked by 50 basis points RBI raises cash reserve ratio in liquidity mop-up More Stories on : Editorial | Credit Policy
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
 |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | The Hindu ePaper | Business Line | Business Line ePaper | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2008, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|