Some quick inputs on RBI policy
Submitted by Ameya Pimpalgaonkar on June 2, 2008 – 5:39 am
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Here are some good inputs on RBI’s recent policy, i am posting summary of this article which is followed by a link to download the PDF article..
RBI Policy
At last week’s policy meeting, the RBI left the repo, reverse repo and bank rates
unchanged at 7.75%, 6% and 6% respectively but hiked the cash reserve ratio
(CRR) by 50bps to 7.5%.
RBI’s stance retained the earlier emphasis on price stability and anchoring inflation
expectations as well as the emphasis on ensuring credit quality and orderly
conditions in financial markets. We retain our expectations for another 50bp
CRR hike in 1Q08 and look for more sterilisation bond issuances before policy
rate hikes are eventually seen as “unavoidable” in 3Q08.
unchanged at 7.75%, 6% and 6% respectively but hiked the cash reserve ratio
(CRR) by 50bps to 7.5%.
RBI’s stance retained the earlier emphasis on price stability and anchoring inflation
expectations as well as the emphasis on ensuring credit quality and orderly
conditions in financial markets. We retain our expectations for another 50bp
CRR hike in 1Q08 and look for more sterilisation bond issuances before policy
rate hikes are eventually seen as “unavoidable” in 3Q08.
Growth forecast maintained
3% WPI goal really a long-run “wish”
The RBI maintained its GDP forecast for FY2007 (Apr07-Mar08) at 8.5% and
repeated that the goal is to contain inflation close to 5%. It also mentioned
that the endeavour would be to condition inflation expectations in the range
of 4.0%-4.5%, so that in the medium-term, inflation can be brought down to
3%. We would not pay too much attention to this 3% medium-term inflation
target. Given the government’s fear that higher rates would slow growth, the
RBI would probably not have the freedom to raise rates sufficiently to bring
inflation down to 3%. RBI moves are, therefore, likely to be restricted to the
objective of containing inflation below 5%.
The RBI maintained its GDP forecast for FY2007 (Apr07-Mar08) at 8.5% and
repeated that the goal is to contain inflation close to 5%. It also mentioned
that the endeavour would be to condition inflation expectations in the range
of 4.0%-4.5%, so that in the medium-term, inflation can be brought down to
3%. We would not pay too much attention to this 3% medium-term inflation
target. Given the government’s fear that higher rates would slow growth, the
RBI would probably not have the freedom to raise rates sufficiently to bring
inflation down to 3%. RBI moves are, therefore, likely to be restricted to the
objective of containing inflation below 5%.
Regards,
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