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Highlights of the Monetary Policy 2004 - Views on News from Equitymaster
 
 
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  • Apr 29, 2003

    Highlights of the Monetary Policy 2004

    The RBI has stuck to its earlier stated objectives regarding the monetary and credit environment in the country and as expected has announced a further reduction in the bank rate and Cash Reserve Ratio (CRR). The overall stance of the monetary policy as stated by the RBI is as follows:

    1. Provision of adequate liquidity to meet credit growth and support investment demand in the economy while continuing a vigil on movements in the price level.

    2. In line with the above, to continue with the present stance of preference for a soft and flexible interest rate environment within the framework of macroeconomic stability.

    To support the above mentioned stance the RBI has advocated the lowering of the banks as well as the CRR. While the bank rate has been reduced to 6% from the earlier 6.25% (effective today), the CRR by 25 basis points to 4.5% effective June 14th 2003. The central bank has gone further to ensure that the benefits of lowering of these rates reach to borrowers in the form of lower rates of borrowing. While the RBI has left banks to determine their own prime lending rates (PLR), it has given suggestions to banks regarding determination of PLR to ensure that the benefits of lowering of the bank rate and CRR is passed on to the borrowers.

    The central bank has also focused on certain key areas in the monetary policy in order to give a boost to the same. It has made further concessions towards Kharif farmers to mitigate the effect of drought. The RBI has also relaxed certain regulatory aspects regarding lending to the infrastructure sector in order to promote credit growth in the same. Apart from these the RBI has also announced certain regulatory provisions regarding credit to the agricultural and housing sectors.

    The monetary policy also highlighted the RBIís outlook regarding the Indian economy for 2003-2004. The central bank has stated that Indiaís GDP is expected to grow by 6% in FY04 assuming an inflation rate ranging between 5-5.5%. RBIís forecast is also based on the assumption that the monsoons for 2003 will be 96% of the long-term average. The RBI has also forecasted an increase in non-food credit in the range between 15.5%-16.0% in FY04. Expansion in money supply in FY04 has been pegged at 14% indicating that the central bank is forecasting a scenario of ample liquidity in the market. While the RBI has time and again made its stance clear i.e. soft interest rate scenario, it remains to be seen whether banks oblige to this stated stance. On the whole, the RBI policy continues to be forward looking and consistent.

     

     

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