Monday, February 01, 2010

RBI Policy: Growth is the need of the hour

Reserve Bank of India in its monetary policy only hiked CRR rate. The cash reserve ratio will become 5.75% from the resent 5 percent. All other key rates repo, reverse repo and bank rates will remain the same.

Debates are on and RBI’s policy is clear - Growth is the need of the hour. Inflation was a major concern, and still remains so. But Reserve Bank of India in its monetary policy only hiked CRR rate. The cash reserve ratio will become 5.75% from the present 5 per cent. All other key rates repo, reverse repo and bank rates will remain the same.
CRR rate hike will be implemented in two phases. All this shows that growth is the main target. RBI reversed its growth forecast to 7.5 percent for the present 6 percent, which will be an attainable figure. Earlier, the UPA government also made it clear that India will record above seven percent growth rate in 2009-10.

Food inflation was a major concern for the Central bank. They now predict that inflation would come down by March. By February end, the full fledged budget by the UPA second will be tabled, which will be a road map for the country in the path of progress. It seems everyone believes that inflation can be tamed without disturbing growth. As the RBI governor said now we have to look for consistent measures.
On the global front giants like US and China are controlling their banks with tight measures. Recently China increased bank rates also. RBI policy review came on the wake of the US President’s remark on outsourcing. As expected he made his stand clear that he is against outsourcing. When outsourcing stops, all IT and IteS companies in India will face difficulties. This would adversely affect India's economic growth. Inflation is the major reason of worry of the common man. The government and RBI have taken so many steps to curb inflation but it still remains untamed.
Indian corporate recorded decent growth figures in the quarters so far. One more quarter is left. It is believed that they would do better in the fourth quarter also. Agricultural sector is the most under performing sector now. IT and enabled services contribution to India's growth story was large in the past decade. Now a sea change is going to happen in this sector. In the coming budget also it should be great concern. Otherwise we will see another wash over in the IT sector.

Indian indices tanked for the past two weeks and were main concerns of RBI policy review. Banking stocks witnessed huge selling pressure due to fear of a rate hike.
After the review a big amount of money will be wiped out from the market. Indian market reacted fiercely to the policy changes at first. But then indices bounced back. Experts believe that till union budget, there will be volatility in the Indian stock market. In the short term, we can expect some buying pressure too. Beaten down banking stock counters are filled.
In short RBI monetary policy aims at consistent growth. It ensures that steps would be taken to tackle fiscal deficit. As feared, the RBI policy change was not a bad one. It's clear that the RBI intention is to maintain a decent growth rate. Coming budget will follow RBI’s stand on growth.

Source: merinews.com

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