Nothing to write home about

The Monetary and Credit
29 April 2003

Our Banking Bureau 29 April 2003

Mumbai: Presenting the Monetary and Credit Policy 2003-04, Reserve Bank of India (RBI) Governor Dr Bimal Jalan has announced a 0.25-per cent cut in the bank rate, effective from the close of business hours today.

Jalan has also announced a 2.5-per cent cut in the cash reserve ratio (CRR) to bring the CRR down to 4.5 per cent beginning the fortnight of 14 June 2003.

The gross domestic product (GDP) growth, he said, is expected at 6 per cent assuming the satisfactory spatial distribution of the monsoons. "The inflation is expected to be in the range of 5-5.5 per cent in 2004."

Jalan said in view of the several structural constraints, the existing nominal and real interest rates are relatively low. "There may not be significant potential for further sizeable downward movement in interest rates."

The above announcements are more or less on expected lines and markets and businesses will not have much difficulty in factoring the changes. Inflation, which was around 3.5 per cent in the previous fiscal, needs to be watched closely. Over the last two years the bank rates have been cut sizeably, as the inflation rates were low and the bank rates were pruned to match with the real interest rates. With inflation rates on the rise, we may see the real interest rates rising and correspondingly a rise in the borrowing as well the lending rates.