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Wednesday, Jan 25, 2006


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Money & Banking - Credit Policy

`Emphasis on price stability'

Our Bureau

Mumbai , Jan. 24

Mr Y.M. Deosthalee, Whole-time Director & CFO, L&T: Through its current policy, the central bank has maintained its emphasis on price stability with a view to anchoring inflationary expectations.

By hiking the repo and reverse repo by 25 bps, it continues to take pre-emptive measures against any future spike in inflation, thus averting the need to take larger, drastic adjustments going ahead.

Further, the RBI has monitored liquidity through the year, and stepped in to prevent any sizable shift in liquidity due to seasonal and transient factors. By not changing the cash reserve ratio, the policy ensures that appropriate levels of liquidity are maintained in the system so that all genuine requirements of credit are met with emphasis on quality.

It has maintained its emphasis on price and financial stability by monitoring global developments, in particular, the movement of international interest rates, oil prices, levels of credit and asset market activity, and the rising trade and current account deficit in the country.

Mr Prasad Menon, President, Bombay Chamber of Commerce and Industry and Managing Director of Tata Chemicals: Although it was expected to maintain the status quo in interest rates, by raising the repo rates, the RBI has recognised the continued demand for bank credit and global interest rate trends. Banks that have been hesitant to take a view on raising rates would now be emboldened to hike rates. The G-Sec, Y curve may steepen and the securities market for debt securities would continue to languish.

The RBI Governor's view that there is need for urgent policy support for strengthening export competitiveness, such as the development of infrastructure and simplification of procedures, is welcome.

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