In the midst of the global turmoil and huge expectation, Reserve Bank of India (RBI) announced the Monetary Policy for the year 2009-10. Here are some of the fine points from the Monetary Policy.

Fine Points:

1. RBI has cut Repo rate by 25bps from 5.0% to 4.75%.

2. Reverse Repo rate has been cut by 25bps from 3.5% to 3.25%.

3. The bank rate is left unchanged at 6.0%.

4. The CRR has been left untouched at 5.0%.

5. RBI has projected the GDP growth for 2008-09 to be in the range of 6.5% to 6.7%. However, with the assumption of normal monsoon, for policy purpose, real GDP growth for 2009-10 is placed at around 6.0%.

6. Headline inflation as measured by year-on-year variations in the wholesale price index (WPI), has fallen sharply from its intra-year peak of 12.91% on August 2, 2008 to 0.18%, recorded on April 4, 2009. However, the inflation based on various consumer price indices (CPI) continues to be near double digit level, mainly because of the costly food articles. The WPI inflation is expected to in the negative territory for the early part of 2009-10. However, this should not be interpreted as deflation for policy purpose. RBI clearly states that this expected negative inflation has only statistical significance and is not the reflection of demand contraction as in the case in advanced economies. So keeping in view the global trends in commodity prices and domestic demand-supply balance, RBI has projected WPI at around 4.0% by end March 2010.

7. At present, interest on savings bank accounts is calculated on the minimum balances held in the accounts during the period from the 10th day to the last day of each calendar month. The payment of interest on savings bank accounts by scheduled commercial banks (SCBs) would be calculated on a daily product basis with effect from April 1, 2010.

8. As per the extant norms, Authorised Dealer Category “I and authorised banks are permitted to grant loans up to Rs.20 lakh against the security of funds held in NR(E)RA and FCNR(B) deposits. On a review, it is proposed to enhance the cap of Rs.20 lakh to Rs.1 crore with immediate effect.

9. As per the Interim Budget 2009-10, the revenue deficit and the fiscal deficit are projected to decline only moderately to 4.0 per cent and 5.5 per cent respectively during 2009-10.

10. In February 2005, the Government of India and the Reserve Bank released the 'Roadmap for Presence of Foreign Banks in India' aimed at increasing the efficiency and stability of the banking sector in India. The roadmap was divided into two phases; the second track was the gradual enhancement of the presence of foreign banks in a synchronised manner. In view of the current global financial market turmoil and the uncertainties surrounding the financial strength of banks around the world, RBI has decided to put the second phase of implementation in the back burner as of now. RBI will go ahead with the proposed second phase only when there is greater clarity regarding stability, recovery of the global financial system and better global coordination on regulation and supervision.

    
    

    On the basis of the overall assessment, the stance of monetary policy in 2009-10 will broadly be as follows:

    • Ensure a policy regime that will enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy to a high growth path.

    • Continuously monitor the global and domestic conditions and respond swiftly and effectively through policy adjustments as warranted so as to minimise the impact of adverse developments and reinforce the impact of positive developments.

    • Maintain a monetary and interest rate regime supportive of price stability and financial stability taking into account the emerging lessons of the global financial crisis.

     

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