Get More Info
  • STOCKSELECT
  • SECTOR REPORT
  • RELATED VIEWS
  • SPECIAL REPORT
  • INTERVIEW
  • MYSTOCKS

  • Views Search

    Portfolio Tracker
  • VIEW PORTFOLIO
  • Equitymaster.com : Highlights of the Monetary policy
     
  • PRINT THIS
  • E-MAIL THIS
  • FEEDBACK
  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  MAY 18, 2004

    Highlights of the Monetary policy
    MYSTOCKS | FREE NEWSLETTER

    The Reserve Bank of India (RBI) has retained its stance regarding interest rates and the broader economy in its monetary policy for 2004-05. The central bank has left the bank rate and the repo rate untouched at 6% and 4.5% respectively. The overall stance of the monetary policy 2004-05 as stated by the RBI is as follows:

    • 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.

    • 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.

    As expected, while the monetary policy did not have any major announcements, the key highlights include:

    • As far as the outlook for the Indian economy in 2004-2005 is concerned, the RBI has stated that India's GDP is expected to grow between 6.5% to 7.0% in FY05. The RBI's forecast is based on sustained growth in industrial sector, normal monsoons and good performance of exports.

    • In FY04, the RBI's inflation target was 4.0% to 4.5%. However, firm crude prices resulted in average inflation hovering at around 5.4%. RBI expects inflation at 5% levels for 2004-05.

    • The RBI has also forecasted an increase in non-food credit in the range between 16.0%-16.5% in FY05.

    • Expansion in money supply in FY05 has been pegged at 14% indicating that the central bank is forecasting a scenario of ample liquidity in the market. Fiscal deficit as indicated by the Union Budget is pegged at 4.4% of GDP in FY05.

    • The RTGS (Real Time Gross Settlement) system is expected to be implemented by June 2004, thus paving way for the stock markets migrating into the T+1 system.

    • The RBI has also proposed the reintroduction of the Capital Indexed bonds (CIBs), wherein the returns will be linked to the inflation in the economy. Instruments like CIBs are very popular in the global markets and offer an option for investors to mitigate risk of higher inflation and the consequent impact of the same on returns.

    A lot of emphasis has been placed on the agricultural sector, considering the high dependence of the country on the same. RBI has provided further sops in the form of concessions in credit delivery. Banks may waive margin/security requirements for agricultural loans up to Rs 50,000. Apart from this, concessions have been made towards NPA recognition for the agricultural sector.

    The RBI has also proposed to expand the scope of the infrastructure sector to include sectors like (i) construction relating to projects involving agro-processing and supply of inputs to agriculture; (ii) construction for preservation and storage of processed agro-products and (iii) construction of educational institutions and hospitals. Measures to increase credit availability to the infrastructure sector have also been proposed. Overall, these measures could enable better access of credit for these sectors in the long-term.

    Having looked at the highlights, what should a retail investor draw from this policy?
    The GDP growth expectations are, first of all, lower as compared to FY04. So, investors who were banking on the fact that India has moved to a different growth trajectory need to revise their expectations. Also, there are number of conditions upon which this growth expectation of 6.5% to 7% is based. If monsoons fail, this number could be revised downwards.

    Secondly, RBI has mentioned that continuation of firm crude prices could impact inflation expectations as well. There could be a possibility that interest rates could edge higher in the future.

    Overall, this monetary policy per se, was a non-event. However, the central bank has been consistent in its focus towards enhancing credit availability and maintaining price stability in the economy.

    Read our coverage of the Monetary Policy May 2004

    Its about selecting the right stock...
    ...at the right price!

    Equitymaster follows the value-investing approach to selecting stocks for investment. Subscribe to our premium research today!

    More Views on News

    My Latest Stock Recommendation (Fast Profits Daily)

    Oct 9, 2020

    How I picked an exciting stock using trends from both the commodity and equity markets.

    Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

    Jun 1, 2020

    Is too much data hurting your quest for market beating returns?

    Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

    Apr 29, 2020

    Ajit Dayal on how the mutual fund industry robs you of your wealth.

    This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

    Oct 16, 2019

    If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

    Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

    Aug 16, 2019

    Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

    More Views on News

    Most Popular

    This One Smallcap Stock is a Must Have in Your Portfolio (Profit Hunter)

    Nov 11, 2020

    Investing in this smallcap could open doors of huge, long-lasting wealth.

    This Diwali Consider Richa's #1 Stock Pick for 2021 (Profit Hunter)

    Nov 13, 2020

    Why I admire the approach that Richa uses to zero in on stocks with huge upside potential.

    Should You Buy Gold Now? (Fast Profits Daily)

    Nov 11, 2020

    Pfizer has announced a vaccine for covid-19. In response, gold prices have fallen. Should you buy? Find out in this video..

    Don't Let Brokerages Fool You into Buying HUL & Nestle. The Real Money is in These Stocks Right Now... Views On News (Views On News)

    Nov 12, 2020

    Rahul Shah discusses why he preferred a little known stock over Nestle Ltd and how he was proven right.

    US Elections: Won a Battle, Now the War (The Honest Truth)

    Nov 13, 2020

    Ajit Dayal on the urgent need to fix the disparity between the rich and the poor in the US.

    More