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Monetary and Credit Policy for the year 2003-04

Monetary and Credit Policy for the year 2003-04. Rakesh Mohan Deputy Governor Reserve Bank of India. Structure of presentation. Macroeconomic and Monetary Developments Developments during 2002-03 Projections for 2003-04 Stance of Monetary Policy 2003-04.

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Monetary and Credit Policy for the year 2003-04

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  1. Monetary and Credit Policyfor the year 2003-04 Rakesh Mohan Deputy Governor Reserve Bank of India

  2. Structure of presentation • Macroeconomic and Monetary Developments • Developments during 2002-03 • Projections for 2003-04 • Stance of Monetary Policy 2003-04

  3. Macroeconomic and Monetary Developments 2002-03 • GDP growth revised downwards : 4.4 per cent • Decline in output from agriculture : 3.1 percent. • Industry ( 5.8 per cent), and • Services sector growth (7.1 per cent) higher than previous year • Difference between RBI’s October projections (5.0 – 5.5 per cent) and now is on account of intensity of drought

  4. Macroeconomic and Monetary Developments 2002-03 • WPI on point to point basis : 6.2 per cent • WPI on Average Basis : 3.3 per cent • Higher inflation mainly on account of non-food articles and mineral oils • Mineral oils • Oilseeds • Edible oils • Oil cakes • Fibres

  5. Macroeconomic and Monetary Developments 2002-03 • All Monetary Indicators in Trajectory • M3 growth at 15.0 per cent; (12.1 net of mergers) • Growth in aggregate deposits at16.1 per cent; (12.2 per cent net of mergers) • Growth in RM low (9.2 per cent) despite • substantial accretion to NFA • Sustained increase in credit flow to commercial sector at 25 per cent

  6. Macroeconomic and Monetary Developments2002-03 • Further Decline in Interest Rates in 2002-03 • Government Yield down by by 210 basis points • Yield on non-Government debt witnessed sharper reduction • Liquidity managed judiciously by means of OMOs and LAF operations. • Sharp reduction in long term deposit rate. Flattening of deposit rate structure. • Modest decline in lending rates • Policy Rates reflected overall softening of interest rates • Bank rate from 8.0 per cent in 2000 to 6.25 per cent in October 2002 • Repo rate from 8.0 per cent in March 1999 to 5.0 per cent in March 2003

  7. Macroeconomic and Monetary Projections 2003-04 • GDP growth projected at 6.0 per cent • If Rainfall is around 96 per cent of long-term average • Inflation outlook at 5.0 – 5.5 per cent • Higher base level of prices at end-March 2003 • Expected decline in oil prices • Expectations regarding behaviour of Monsoon • M3 growth projected at 14.0 per cent. • Non food credit expected to grow by 15.0-16.0 per cent.

  8. Structure of presentation • Macroeconomic and Monetary Developments • Developments during 2002-03 • Projections for 2003-04 • Stance of Monetary Policy 2003-04

  9. Monetary Policy Stance • Provision of adequate liquidity to meet credit growth • Preference for a soft and flexible interest rate environment.

  10. Monetary Policy Stance • Monetary Measures • Bank Rate reduced by 25 basis points to 6.0 per cent • Not going far because of inflationary concerns • To be kept stable until October, 2003 • CRR cut by 25 basis points to 4.50 per cent effective June 14, 2003.

  11. Monetary Policy Stance • Overall Message • Serves to balance concern about inflation and concern about growth • Policy in favour of maintaining liquidity and soft interest rate bias rather than tightening monetary policy • Support to growth through higher credit growth • Aim to contain inflation through other means

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