The Hindu Business Line : RBI aims at price stability; key rates unchanged

As prices continue to remain high, the Reserve Bank of India does not want too much money chasing too few goods. On Tuesday, the RBI hiked Cash Reserve Ratio by 25 basis points to suck out Rs 9,000 crore from the system.

This is the second hike in CRR, the portion of deposits that banks have to keep with the RBI, this month.

With this hike, the CRR will touch 8.25 per cent. On April 17, the RBI hiked the CRR by 50 basis points to 8 per cent. When the latest hike comes into force on May 24, a total of Rs 27,500 crore would have gone out of the system.

In its Annual Policy Statement 2008-09 announced today, the RBI kept all its key rates unchanged. Though the central bank has not indicated a hike in interest rates, the increase in CRR could put upward pressure on lending rates, said bankers and analysts.

Dr Y.V. Reddy, RBI Governor, said: “There is greater inflation pressure now than what we expected. Global uncertainties have increased. There is a constellation of adverse factors… and all of them have happened at the same time. All these factors happening together have resulted in an extraordinary degree of uncertainty.”

Inflation control

The aim of the policy is to bring down inflation from the current level of about 7 per cent to around 5.5 per cent in 2008-09, with a preference for bringing it as close to 5 per cent as soon as possible. Going forward, the objective is to bring it down to around 3 per cent in the medium term.

The RBI has projected a GDP growth of 8-8.5 per cent for the current year, assuming the country sees a normal monsoon.

The policy indicates a moderate 20 per cent growth in credit and 17 per cent rise in deposits.

“Overall, therefore, we feel that we can comfortably continue the growth momentum in the range of 8-8.5 per cent. Inherently our savings and investments are high, our productivity is fairly high and the demand is essentially domestically driven,” he said.

The RBI has proposed to review the current stipulations regarding conversion factors, risk weights and provisioning requirements for specific off-balance-sheet exposures of banks and prescribe prudential requirements, the guidelines for which would be released by May 15, the policy said.

The policy also proposes to review the prudential guidelines of systemically important non-deposit taking NBFCs.

Derivative losses

Regarding derivatives exposure, the policy said that banks and their clients who have scrupulously followed the extant guidelines, including the regulations framed under the FEMA, would be well equipped to meet any potential consequences.

He said, “There is inspection going on of all banks. After inspection we have to take a view. As far as our current assessment is concerned, this does not have systemic implications. These are factual issues of whether there have been ‘mis-selling’. There are many issues where there is a dispute going on. At this stage we are only monitoring the situation.”

Related Stories:
Cash reserve ratio hiked by 50 basis points
RBI raises cash reserve ratio in liquidity mop-up

More Stories on : Credit Policy | RBI & Other Central Banks

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