The Reserve Bank of India's third quarter review of the annual policy statement is a balanced analysis of the current economic scenario and the regulatory approach needed to sustain the recovery in growth while maintaining systemic stability and stable inflation expectations. RBI, in the credit policy, has endorsed the recovery in growth in the Indian economy and has recognised the strong improvement across industrial production and the infrastructure and export sectors in recent months.
In view of these developments and better prospects of the rabi crop, RBI has revised its projections for GDP growth from 6.5% in the last quarterly review to 7.5% now. At the same time, RBI has also recognised that the growth is partly driven by public expenditure and is not as broad-based as would be desirable. As such, RBI has articulated the need to maintain growth supportive measures.
While the recent increase in inflation is largely driven by supply side pressures, RBI has articulated that such inflation could become generalised once the recovery accelerates.
Given the need to manage inflationary expectations and the comfortable liquidity in the system, RBI has increased the CRR by 75 basis points. While this would result in a decrease of Rs. 36,000 crore in systemic liquidity, overall liquidity in the system will continue to remain comfortable. In addition, with the government borrowing programme for financial year 2010 almost complete, it is expected that there would be adequate liquidity in the system for meeting credit demand.
In summary, the third quarter review recognises the recovery in growth in the Indian economy and improved performance across the industrial, infrastructure and export sectors.
The third quarter review recognises the need to maintain a monetary policy conducive to broad based growth and indicates a balanced approach to managing both the price stability and growth objectives.
Source : Financial Express