Download Presentation

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
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
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
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
Macroeconomic and Monetary Developments
2002-03

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
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.
Structure of presentation

Macroeconomic and Monetary Developments



Developments during 2002-03
Projections for 2003-04
Stance of Monetary Policy 2003-04
Monetary Policy Stance


Provision of adequate liquidity to meet credit growth
Preference for a soft and flexible interest rate
environment.
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.
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