RBI comes with a new credit policy to check inflation

Apr 24: While announcing a new credit policy for the year 2007, RBI chief has promised to curtail the inflation by gradually reducing it from 6.09 percent to below 5.0 percent. For this the RBI has not hiked the Repo rate and Reverse Repo rate and has tried to maintain the Cash Reserve Ratio CRR, of 6.5 percent for maintaining enough margins for liquidity. The Reserve Bank of India has also decreased the interest rate on home loans up to Rs 20 lakhs, so that lower income groups can have some breath. At the same time the apex bank has predicted 8.5 percent GDP for the current fiscal year, as against 9.2 per cent observed last year. Also the global GDP growth is expected to decline by 0.5 per cent in 2007. RBI’s governor VY Reddy announced the annual Credit policy for the current fiscal year in a news conference held in Delhi today.

In a soft credit policy, governor general of Reserve bank of India has announced not to touch the repo and reverse repo rate for the forth coming three or four months to heal the inflation rate that is breaking the back bone of the general public. RBI’s governor said, “RBI will strive to keep the inflation close to 5 per cent in this fiscal year while the medium term objective is to bring it down to 4-4.5 per cent.� He further added, “The money supply will be brought down from 20 percent to 17-17.5 per cent and the credit growth will be 25-25.5 percent, while the trade deficit will remain at 7 per cent.� To maintain these statistics the RBI will enhance the credit policy, quoted Reddy.

Quoting an aggressive target, P Chidambaram, the Finance Minister of India said, “To keep inflation below 4.5 per cent is indeed an aggressive target. But that appears to be the tolerance level for inflation. So, RBI is aiming at inflation below 4.5 per cent. Certainly, the government would welcome that stance and support that stance." But the fact is that RBI was targeted to sustain inflation rate between 5 to 5.5 per cent for the last fiscal and it reached above six percent in most of the weeks, since January this year. Though the commanding bank has lowered the growth figure from last year’s 9.2 percent to 8.5 per cent for this fiscal year.

RBI governor said that India would not contribute to global imbalances. To help distress farmers RBI will provide micro-finance and develop the corporate bond market, future contract and will establish credit information companies. The top financial institution has also estimated the M3 expansion to sustain at around 17.0-17.5 per cent by the end of next year. While the deposits are expected to increase to Rs 4,90,000 crore during 2007-08.