Highlights of Reserve Bank of India's Credit Policy for 2004-05

As largely expected, there were no noteworthy announcements made by
the RBI in its annual credit policy statement. The statement broadly
follows the pattern already set in the previous policies.

The stance of monetary policy in 2004-05 is expected to depend
primarily on: (a) GDP growth; (b) inflation; and (c) global
developments.

RBI believes that global recovery appears more sustainable now and
there is greater resilience in emerging economies. However, it
observed that the major issue for global financial markets in 2004-05
relates to the continuing macroeconomic imbalances in the United
States, and their possible consequences on the rest of the world in
addition to geopolitical uncertainties.

Though there is widespread anticipation that international interest
rates may rise, an assessment of domestic factors point to stability
of interest rates at this time. However, the RBI has reiterated its
caution to Banks of a reversal in interest rates on the expectation
of healthy domestic and global growth.

Key Takeaways from the Credit Policy

•Bank Rate kept stable at 6.0%.
•Repo Rate unchanged at 4.5%.
•GDP growth for 2004-05 projected at 6.5-7.0%.
•Inflation rate projected for policy purposes at
around 5.0% during
2004-05.
•Projects money supply (M3) to grow by 14.0% and
credit growth of
16.0-16.5% during 2004-05.
•Inflation to be watched closely and with no room
for complacency
on this count.
•Call/notice money market lending limit of
non-bank participants
reduced to 45% effective June 26, 2004.
•A discussion paper on Capital Indexed Bonds
being put in public
domain.

Barring any adverse and unexpected developments in the economy and
assuming that inflation will be stable, the overall objective of the
RBI is to provide adequate liquidity to meet credit growth and
support investment and export demand while keeping a close watch on
inflation.

Consistent with the above, the RBI stated that it will maintain a
status quo – to pursue an interest rate environment that is
conducive
to maintaining the momentum of growth and macroeconomic and price
stability.

Courtesy Investment Manager: HDFC Asset Management Company Limited
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