24 October, 2008
Dr. D. Subbarao, Governor, presented the Mid-term Review of Annual Policy for the Year 2008-09 today in a meeting with Chief Executives of major commercial banks. The Mid-term Review consists of two parts: Part A. Mid-term Review of the Annual Statement on Monetary Policy for the Year 2008-09; and Part B. Mid-term Review of the Annual Statement on Developmental and Regulatory Policies for the Year 2008-09.
Highlights
• Bank Rate, Repo Rate and Reverse Repo Rate kept unchanged.
• The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially, is retained.
• CRR kept unchanged at 6.5 per cent.
• GDP growth forecast for 2008-09 revised to a range of 7.5-8.0 per cent.
• Keeping in view the supply management measures taken by the Government and the lagged demand response to the monetary policy measures taken by the Reserve Bank, it has been decided to maintain the earlier projection of inflation of 7.0 per cent by end-March 2009 for policy purposes.
• It will be the Reserve Bank’s endeavour to bring down inflation to a tolerable level of below 5 per cent at the earliest, while aiming for convergence with the global average inflation of around 3.0 per cent over the medium-term.
• It is necessary to moderate the rate of money supply to 17 per cent in 2008-09.
• Based on the above overall assessment of the macroeconomic situation, the stance of monetary policy for the rest of 2008-09 will be as follows:
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Ensure a monetary and interest rate environment that optimally balances the objectives of financial stability, price stability and well-anchored inflation expectations, and growth;
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Continue with the policy of active demand management of liquidity through appropriate use of all instruments including the CRR, open market operations (OMO), the MSS and the LAF to maintain orderly conditions in financial markets;
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In the context of the uncertain and unsettled global situation and its indirect impact on the domestic economy in general and the financial markets in particular, closely and continuously monitor the situation and respond swiftly and effectively to developments, employing both conventional and unconventional measures;
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Emphasise credit quality and credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.
Government Securities Market
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Floating rate bonds (FRBs) to be issued at an appropriate time taking into account the prevailing market conditions.
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Government of India 7 per cent Savings Bonds, 2002, the 6.5 per cent Savings Bonds, 2003 (non-taxable), and the 8 per cent Savings Bonds, 2003 (taxable) schemes allowed for pledge or hypothecation or lien of these bonds as collateral for obtaining loans from scheduled banks.
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The scheme for Non-Competitive Bidding Facility of State Development Loans (SDLs) to be operationalised by end-December 2008.
Development of Market Infrastructure
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