Mixed message
Top Stories
- IPL spot-fixing case: Actor Vindoo Dara Singh arrested
- IPL 2013: Final No.5 for MS Dhoni-led Chennai Super Kings
- Pune Warriors withdraw from IPL, 'disgusted' by BCCI's attitude
- IPL spot fixing: Accused Sreesanth claims innocence
- Li Keqiang visits TCS, Cyrus P Mistry says China important for growth of Tata Group
Whatever message the stockmarkets may appear to give, Friday's credit policy statement was not entirely unexpected. It announced no further changes in the interest rates or in the cash reserve ratio of banks. But this came after sharp cuts in both these instruments in the last few days. With these measures having had an impact and having brought down inter-bank call money rates, it is now time for the RBI to watch the liquidity situation before announcing any further liquidity enhancing measures. When seen in conjunction with the speed with which the RBI has reacted in the last few days, the credit policy indicates that steps will be taken as required. The markets reacted negatively, but news of UK's GDP decline and weak markets in Europe played a significant role in pulling the Sensex down almost 11 per cent.
However, more should have been done in the policy. The lack of action should have been backed by a strong and clear direction of monetary policy, one that should have turned the focus away from managing future inflation, already declining, to maintaining future growth, which is also coming down. This change is not clear. As a consequence, for example, the policy statement is not sufficient to lead to a reduction in bank lending rates. The policy statement expresses concern over the growth of bank credit at 29 per cent, even though bank credit for the petroleum sector — that has grown by 91 per cent as oil companies have turned to banks for loans — is responsible for a large element of this. The statement says that the RBI would like to see the growth of non-food credit, including investments in bonds/debentures/shares of public sector undertakings and private corporate sector and CP, reduce to around 20 per cent. If the RBI is going to work towards reducing credit growth it is not a signal to banks to reduce lending rates. Also, as long as the liquidity situation in the money market gets affected by the RBI's sale of dollars, which sucks out rupees and can create tight liquidity conditions any day, not many banks are feeling reassured that the easing is here to stay.
... contd.
Please read our terms of use before posting commentsEditors’ Pick
- 'Sophisticated' Indian cyberattacks targeted Pak military sites: Report
- Talkative Li quoted Weber, Hegel, Jobs, said PM is large-hearted
- Bihar food corp ends up with chaff as rice worth Rs 535 cr vanishes from mills
- In 7 lucrative minutes on May 9, Sreesanth bowled 6 balls, bookie made Rs 2.5 cr
- India and China ask border envoys to work on more steps
- Former Ranji player among 3 more held
- Rajasthan Royals to file FIR against tainted trio


Not in the court room
House truths
Catching up
Not so fast




















