RBI CREDIT POLICY : ENDORSEMENT OF RECOVERY IN GROWTH

Chanda Kochhar, MD & CEO, ICICI Bank

NEW DELHI, JAN 30 :
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 recognized 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 percent in the last quarterly review to 7.5 percent now. At the same time, RBI has also recognized 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 generalized 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 bps.

While this would result in a decrease of Rs. 360 bn in systemic liquidity, overall liquidity in the system will continue to remain comfortable. In addition, with the government borrowing programme for FY2010 almost complete, it is expected that there would be adequate liquidity in the system for meeting credit demand.

In summary, the third quarter review recognizes the recovery in growth in the Indian economy and improved performance across the industrial, infrastructure and export sectors. The third quarter review recognizes 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.(editor@thesynergyonline.com)

CRR HIKE MAY PROVE JOLT TO INDUSTRY AND EXPORTS : EPCH

Thesynergyonline Banking Bureau

NEW DELHI, JAN 29 :
REACTING to the hike in cash reserve ratio (CRR) by 75 basis point raising by Reserve Bank of India in its third quarterly review of the Monetary Policy, Mr. Raj Kumar Malhotra, Chairman, Export Promotion Council for Handicrafts (EPCH), said that raising the CRR from 5 percent to 5.75 percent is much higher beyond the expectation of the exporters and the industry.

Such an increase in CRR will increase the interest rates impacting the economic growth of the industry, Mr Malhotra said and added that ‘’to curb the same, the banks should absorb it and should not pass on the same to protect industry and exports.”

EPCH Chairman feared if the prime lending rate (PLR) also goes up consequently to the hike in CRR, it will badly affect the improvement in exports which have been displaying a turn around in the last two months.

Mr. Malhotra urged the Government to maintain an equilibrium between measures needed to contain inflation and among those generating growth.

He pointed out that the interest rates in India are much higher than those prevailing in the world and further hike will hamper the exports making the products un-competitive in the international markets.

During the global economic meltdown, handicraft sector was the worst affected. Gradudally, the handicraft exports started improving in the last couple of months. The declining trend was arrested due to measures of the Government, said Mr. Malhotra.

He is of the opinion that “handicrafts exports during the current financial year will finally arrest the declining trend by the end of the March’2010 and will give a further push at an average rate of 10 per cent in the coming fiscal 2010-11.”

The export of handicrafts during April-December’2009 remained at Rs. 5,536.28 crore (US dollar 1150.08 million) compared to Rs. 5,778 crore (USD 1306 million) in April-December’2008 and recorded a decline of 11.95 per cent. The exports durng October-December’2008 were Rs. 1,274.12 crore (USD 257.04 million) as against Rs. 1,461 crore (USD 322.86 million) in October-December’09 recording a growth of 25.60 per cent. (editor@thesynergyonline.com)

HIKE IN CRR AN INDICATION TO REIN IN INFLATIONARY EXPECTATIONS

Thesynergyonline Economic BUreau

NEW DELHI, JAN 29 :
WITH a hike in cash reserve ratio (CRR) by 75 basis points, the Reserve Bank of India (RBI) has manifested it’s firm determination under given circumstances to rein in inflationary expectations without putting a spanner on growth wheel, says the President ASSOCHAM, Dr. Swati Piramal.

In a statement issued here, the ASSOCHAM Chief described the monetary policy of RBI as the most balanced one and on expected lines which also gives clear indications that it will gradually withdraw from adhering on to liberal monetary policy stance in the best interest of the nation.

According to ASSOCHAM, CRR hike will help the premier bank effectively mop up Rs.36,000 crore from banking system by way of increased cash balance and indeed adversely affect bottomlines of commercial banks as their cost of funds will go up.

However, the slack credit offtake which is around 11percent as against RBI’s target of 18 per cent will dissuade banks from increasing the lending rates, added Dr. Piramal. (editor@thesynergyonline.com)