Adjusting monetary policy to growth needs

The Economic Survey 2008-09, presented by finance minister Pranab Mukherjee in Parliament today, stresses the need for a calibrated approach to using monetary policy measures for an early return to the high growth path.

Monetary policy in 2008-09 had to address the emerging economic situation, wherein the position in the second half of the year was substantially different from the first half. This needs a different approach, while at the same time, making all efforts to build and preserve financial stability, the Survey says.

Monetary policy had to contend with the spillover effects of the global financial crisis on the country's growth path. The liquidity situation had improved significantly towards the end of 2008-09, in the wake of measures taken by the RBI, it noted.

"Taking into account the need to respond to sluggish economic growth witnessed lately, growth in money supply (M3) for 2009-10 was envisaged at 17.0 per cent, as an indicative projection," the Survey says.

The growth in aggregate deposits of scheduled commercial banks has been projected to grow at 18.0 per cent and non-food credit by 20.0 per cent, consistent with this, the Survey said.

"The monetary policy stance for 2009-10 is aimed at ensuring a policy regime that will enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy of a high growth; to continuously monitor global and domestic conditions and respond swiftly and effectively through policy instruments so as to minimise the impact of the adverse developments and reinforce the effect of the positive developments; and maintain a monetary and interest rate regime supportive of price stability and financial stability," the Survey adds.