Highlights of the Monetary and Credit Policy

Following are the highlights of third quarterly review of Monetary Policy released by the Reserve Bank of India on Wednesday:

• Overnight lending rate (repo) up by 0.25 pc to 7.5 pc
• Consequently, liquidity to tighten to tame inflation
• Other rates kept unchanged
• GDP forecast raised to 8.5-9 pc for 2006-07 from 8 pc
• Inflation to be brought down close to 5-5.5 pc
• To pursue goal of ceiling on inflation at 5 pc
• Currently, inflation at 5.95 pc
• Banks have to keep two paise for every Rupee given to real estate sector, capital market, personal loans (excluding housing), against credit cards and to NBFCs
• Consequently, rates for these loans expected to rise
• Concerns over international crude prices
• Liquidity management to receive priority in the remaining part of year
• Impact of monetary policy expected to be stronger than before as a result of tightening of liquidity
• RBI to use all policy instruments, including CRR, to ensure appropriate changes in liquidity for evolving situation
• RBI to ensure that legitimate requirements of liquidity are met
• High growth, firming up of inflation, coupled with escalating asset prices, tightening infrastructural bottlenecks complicated monetary policy conduct
• Concerns relating to persistently high credit growth and possible decline in credit quality
• Risk weight increased to 125 per cent for banks' exposure to NBFCs
• Banks restrained from granting fresh loans over Rs 20 lakh against rupee and foreign currency deposits of non-residents
• Interest rate ceiling on non-residents deposits reduced