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RBI Q3 Monetary Policy

Prepared by:-

Deepak Ambulkar

PGDIIBM/09/043

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RBI is the main monetary authority of the country.

It formulates, implements and monitors the monetary policy.

RBI is the regulator and supervisor of the financial system in the

country.

Issuer of currency.

Prescribes broad parameters of banking operations within which thecountry's banking and financial system functions.

Bank to banks: maintains banking accounts of all scheduled banks

Reserve Bank of India

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Monetary policy is the process a central bank, ormonetary authority of a country uses to control

(i) the supply of money,

(ii) availability of money, and

(iii) rate ofinterest

to attain a set of objectives oriented towards thegrowth and stability of the economy.

Monetary policy rests on the relationship between therates of interest in an economy, that is the price atwhich money can be borrowed, and the total supply ofmoney.

Monetary Policy

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Highlights of Q3 monetaryPolicy

Cash Reserve Ratio (CRR) hiked by 75 BPS in two stages to 5.75%.

About Rs360bn of excess liquidity will be absorbed through CRR hike.

Bank rate retained at 6%. Repo rate has been retained at 4.75%.

Reverse repo rate left unchanged at 3.25%.

Shifting stance from 'managing the crisis' to 'managing the recovery'.

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CONT

WPI inflation projection for FY10 hiked to 8.5% from6.5%.

RBI expects inflation to moderate from July 2010.

FY10 GDP forecast hiked to 7.5% from 6% earlier.

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CONT India's Q3 GDP growth will be lower than Q2 due to deficient monsoon.

Agricultural GDP growth in FY10 is expected to be near zero.

Crude oil prices may increase sharply.

High food prices will continue to intensify inflationary pressures.

Large fiscal deficit poses risk to economic prospects. RBI awaiting the Govt's decision on phasing out transitory components of fiscal stimulus.

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CONT Global economy is showing increasing signs of

stabilization. Asian region experiencing a relatively stronger rebound.

IMF revises projection of global growth for 2010 to3.9%, up from 3.1%.

Growth of emerging and developing economies isprojected at 6%, up from 5.1% earlier.

IMF sees slack in resource utilisation will contain global

inflationary pressures. RBI sees some signs of asset price inflation globallyalong with rise in commodity prices.

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CONT

Exports expand in Nov. 2009 after contracting for 13months.

Non-bank sources of finance mitigate impact of

slowdown in bank credit growth.

India is facing rising inflationary pressures, largelydue to supply side factors.

Sustained increase in food prices is beginning to spillover into other commodities and services too.

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BHARTI VIDHYAPEETH,PUNE

QUESTION??????