Monetary Policy 2003-04: Summary
Our
Banking Bureau
29 April 2003
Mumbai: Below is the summary of the Monetary and Credit Policy 2003-04 announced today:
Stance of Monetary
Policy for 2003-04
Spelling out the stance of monetary policy, Governor said
that as per present assessment, and barring the emergence
of adverse and unexpected developments in the various
sectors of the economy, the overall stance of monetary
policy for 2003-04 will be:
- Provision of
adequate liquidity to meet credit growth and support
investment demand in the economy while continuing a
vigil on movements in the price level.
- In line with the above, to continue with the present stance of preference for a soft and flexible interest rate environment within the framework of macroeconomic stability.
Monetary Measures
(a) Bank Rate
- It is proposed to reduce the Bank Rate by 0.25 percentage point from 6.25 per cent to 6.0 per cent with effect from the close of business today (April 29, 2003).
Commenting on the
Bank Rate reduction, Governor said that the Bank Rate
has been reduced from 11.0 per cent to 6.0 per cent, i.e.
by 500 basis points in the last five years. This is the
sharpest reduction in the Bank Rate since independence.
Unless the domestic and international circumstances change,
Governor stated, the policy bias in regard to the Bank
Rate is to keep it stable until the mid-term Review of
October 2003.
(b) Cash Reserve Ratio
As a further step in moving towards the medium-term objective
of reducing cash reserve ratio (CRR) of banks to the statutory
minimum level of 3.0 per cent, Governor proposed to:
- Reduce CRR further from 4.75 per cent to 4.50 per cent effective fortnight beginning June 14, 2003.
Governor mentioned
that with this reduction, CRR would have been reduced
by 4.0 percentage points in the last three years.
(c) Payment of Interest on eligible CRR Balances
on Monthly Basis
Governor informed that as indicated in the mid-term Review
of October 2002, interest on eligible CRR balances maintained
by banks with RBI would be paid on monthly basis from
April 2003.
(d) Export Credit Refinance Facility
Governor announced that in response to the suggestion
received from the exporting community, in the present
uncertain geopolitical environment, it has been decided:
- To continue extending refinance facility to eligible export credit remaining outstanding under post-shipment credit beyond 90 days and up to 180 days.
This measure will
be reviewed again in October 2003.
(e) Back-stop Facility
Governor indicated that in order to increase the efficacy
of liquidity adjustment facility (LAF) operations, it
is desirable to rationalise the multiplicity of rates
at which liquidity is absorbed/injected. Accordingly,
Governor proposed that:
- The "back-stop"
interest rate will be at the reverse repo cut-off rate
at which funds were injected earlier during the day
in the regular LAF auctions;
- Where no reverse
repo bid is accepted as part of LAF auction, the "back-stop"
interest rate will generally be 2.0 percentage points
over the repo cut-off rate of the day under LAF;
- On the days when no bids for repo or reverse repo auctions are received/accepted, the "back-stop" interest rate will be decided by RBI, on an ad hoc basis.
