• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

The Reserve Bank of India’s recent Monetary Policy review aims to bring down inflation through a well-balanced approach to demand- and supply-side pressures. By hiking the cash reserve ratio by 25 basis points, another Rs 9,000 crore is expected to be absorbed from the system, taking the total to Rs 28,000 crore. Containing inflation to 5.5 per cent, policy rates remaining untouched and projected growth rate of 8-8.5 per cent indicate a cautious handling of the situation.

The policy projects 20 per cent credit growth and 17 per cent rise in deposits among the banks. The RBI has felt that the present profitability of banks can absorb the squeeze in the margins. Thus banks are left with the task of managing credit growth by taking a review of loans to commodities.

The increase in the housing loan limit from Rs 20 lakh to Rs 30 lakh for risk weights will certainly help capital planning.

However, this situation should not be construed as a credit crunch. Credit will be available to the productive sector and will be discouraged for hoarding.

How far concessions in the steel, cement and food sectors will help combat inflationary trends will have to be seen, as immediate results cannot be expected. The policy has attempted to ensure a stable economic set-up at the macro level. It is vital for banks to ensure that the RBI’s policy is followed in right earnest. At this point of time, it is highly relevant to recall Dr Manmohan Singh’s appeal that industry and trade should eschew the temptation of short-term gains.

Therefore, a basic sense of responsibility coupled with sensitivity to the situation should evolve among all concerned to ensure better economic growth.

B. N. Iyer Chennai

More Stories on : Letters | Credit Policy

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

Stories in this Section
Inflation and the poverty line

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