Annual Monetary and Credit Policy for the year 2004-2005

Annual Policy Statement
18 May 2004

The Statement consists of three parts:

I. Review of Macroeconomic and Monetary Developments during 2003-04 II. Stance of Monetary Policy for 2004-05 III. Financial Sector Reforms and Monetary Policy Measures

The policy documents of the Reserve Bank provide a framework for the monetary and other relevant measures that are taken from time to time and capture the rationale or the underlying factors at work that affect its macroeconomic assessments. The documents also set out the logic, intentions and actions related to structural and prudential aspects of the financial sector. This Statement broadly follows the pattern already set in previous years. It delineates and elaborates on various areas in which RBI has been taking measures from time to time and provides a focus on broad policies that are intended to be pursued for the year 2004-05, while retaining the flexibility to take specific measures promptly and effectively as the evolving circumstances warrant.

2. The Statement consists of three parts: (I) Review of Macroeconomic and Monetary Developments during 2003-04; (II) Stance of Monetary Policy for 2004-05; and (III) Financial Sector Reforms and Monetary Policy Measures. An analytical review of macroeconomic and monetary developments is also being issued, as in the past, as a separate document providing the necessary information and technical analysis with the help of simple charts and tables.

I. Review of Macroeconomic and Monetary Developments during 2003-04

Domestic Developments

3. The annual Statement on monetary and credit policy released on April 29, 2003 projected real GDP growth for 2003-04 at about 6.0 per cent for policy purposes. Based on a review of developments since then, the Reserve Bank had scaled up its projection of GDP growth from time to time, and expected a GDP growth of 7.0 per cent with an upward bias in January 2004. The advance estimate of GDP for 2003-04 released by the Central Statistical Organisation (CSO) in February 2004 has placed the GDP growth much higher at 8.1 per cent.