Reddy said that inflation would be contained within the 5 and 5.5 per cent range during 2006-07 and projected economic growth at 7.5-8 per cent for 2006-07.

Money supply is expected to expand by 15 per cent during the current financial year and there would be "no liquidity constraints for legitimate credit requirements consistent with price and financial stability," added Reddy.

The annual Monetary Policy comprises The Annual Statement on Monetary Policy for the Year 2006-07 (Part I); and the Annual Statement on Developmental and Regulatory Policies for the Year 2006-07 (Part II).

While the The Annual Statement on Monetary Policy will be reviewed on a quarterly basis during 2006-07 as in the previous year, the Annual Statement on Developmental and Regulatory Policies will be reviewed along with the Mid-term Review of monetary policy.

RBI has set the tentative dates for the First Quarter Review, the Mid-term Review and the Third Quarter Review at July 25, 2006, October 17, 2006, and January 23, 2007, respectively.

Highlights

• Focus on credit quality and financial market conditions for maintaining macroeconomic, in particular, financial stability.
• Monetary and interest rate environment enabling growth momentum consistent with price stability.
• Bank Rate, Reverse Repo Rate, Repo Rate and Cash Reserve Ratio kept unchanged.
• GDP growth projection for 2006-07 at 7.5-8.0 per cent.
• Inflation to be contained within 5.0-5.5 per cent during 2006-07.
• M3 projected to expand by around 15.0 per cent for 2006-07. In normal circumstances, the policy preference would be for maintaining a lower order of money supply growth in 2006-07.
• Deposits projected to grow by around Rs.3,30,000 crore for 2006-07.
• Adjusted non-food credit projected to increase by around 20 per cent, implying a calibrated deceleration from a growth of around 30 per cent ruling currently.
• Appropriate liquidity to be maintained to meet legitimate credit requirements, consistent with price and financial stability.
• Ceiling interest rate on non-resident (external) rupee deposits raised to US dollar LIBOR/SWAP plus 100 basis points.
• Ceiling interest rate on export credit in foreign currency raised to LIBOR plus 100 basis points.
• Provisioning for standard advances raised to 1.0 per cent for personal loans, capital market exposures, residential housing beyond Rs.20 lakh and commercial real estate loans.
• Risk weight on exposures to commercial real estate raised to 150 per cent.
• Exposure to venture capital funds treated as part of capital market exposure and assigned with higher risk weight of 150 per cent.
• ''When issued'' market in Government securities announced.
• Primary Dealers to be permitted to diversify their activities.
• Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for inflation, the overall stance of monetary policy at this juncture will be:
  • To ensure a monetary and interest rate environment that enables continuation of the growth momentum consistent with price stability while being in readiness to act in a timely and prompt manner on any signs of evolving circumstances impinging on inflation expectations.
  • To focus on credit quality and financial market conditions to support export and investment demand in the economy for maintaining macroeconomic, in particular, financial stability.
  • To respond swiftly to evolving global developments.