Good outlook on GDP

Uday Chatterjee
04 November 2003

Mumbai: At the time of announcing the Monetary Policy for the year 2003-04 in April, the uncertainties facing the economy were the monsoons, the SARS epidemic and the fallout of the US-Iraq war.

Since then, the Rain Gods have been extremely kind and the monsoons have been better than anticipated. The SARS threat has vanished and the Iraq war managed to create shocks only in Iraq and the US and thankfully there was no shock on oil.

Against this backdrop, Dr Y V Reddy, the governor of the Reserve Bank of India (RBI), presented his maiden Midterm Review of the Monetary and Credit Policy for the year 2003-04 on Monday (3 November 2003).

In the review, the bank interest was kept intact at 6 per cent, the repo rate was intact at 4.5 per cent and the cash reserve ratio (CRR) was intact at 4.5 per cent. The rationale for not changing the bank rates, according to Reddy was: "If the policy framework has served the economy so well and as of today [former RBI governor Bimal] Jalan's policy has delivered more than promised, this is not the time to tinker with the rates unless necessary."

The middle class and senior citizens, which largely depend on fixed income instruments for their investments, will surely heave a sigh of relief. Some sections of the industry, however, were anticipating a cut in the bank rate, which could have given a thrust to credit offtake.

Likewise, the CRR was unchanged as, according to the governor, there was a lot of global liquidity coming in and with flows expected to continue for some time, there was at the moment no need for a fresh infusion of domestic liquidity. The RBI will also be announcing a set of new instruments for better and a more refined management of liquidity.