Y V Reddy, Governor, RBI presented the third quarter review of Annual Statement on Monetary Policy for the Year 2007-08, where he kept intact the key interest rates comprising reserve repo rate, repo rate and cash reserve ratio(CRR).
The Reserve Bank of India has kept the bank rate unchanged at 6.0 per cent. While the reverse repo rate and the repo rate are kept unchanged at 6.0 percent and 7.75 percent respectively the cash reserve ratio rate has intact at 7.5 percent.
The reason for keeping these rates unchanged is that as he said too much liquidity in the market can ignite inflation, especially around the expectations of an increase in food and fuel prices globally in the near future.
On the policy taken by the RBI of keeping the interest rates intact Finance Minister P Chidambaram on Tuesday said, “There is still no certainty that capital flows will increase due to rise in gap between India's interest rates and those in US.”
The finance minister further also said that he would discuss with RBI Governor Y V Reddy about supplementary steps to restrict capital inflows into the country.
”We do not know. We don't know what will happen yet. As I've said (the) cat can jump either way. There could be increased capital flows, but there are payment obligations in those countries and there could be outflow of capital,” Chidambaram said.
He further said, “I endorse (RBI's) approach. The governor has reinforced price stability, emphasised credit quality and credit delivery, particularly to the employment intensive sectors.”
He hoped that there were no indications that India's economic growth rate would slow down.
The projection of overall real GDP growth in 2007-08 is maintained at around 8.5 per cent for policy purposes, assuming no further escalation in international crude prices and barring domestic or external shocks.
The review said that the policy endeavour would be to contain inflation close to 5.0 per cent in 2007-08 while it was being expected in the range of 4.0-4.5 per cent.
The RBI’s review is driven by liquidity management and move to maintain price stability.
“Liquidity management will assume priority in the conduct of monetary policy through appropriate and timely action,” it said.
Among bank stocks, ICICI Bank, State Bank of India and HDFC Bank have lost 3.95%, 1.7% and 4.1% respectively.
Canara Bank, Bank of India, and Oriental Bank of Commerce are down by 6.85%, 6.15%, and 7.35% correspondingly.
Allahabad Bank, Andhra Bank, Bank of Baroda, Centurion Bank of Punjab, Federal Bank, Indian Overseas Bank, Karnataka Bank, Kotak Bank, Punjab National Bank and Union Bank of India are also down with sharp losses.
While non-food credit has decelerated, growth in money supply and aggregate deposits of scheduled commercial banks continue to expand well above indicative projection.
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