Mumbai, Oct 23 (UNI) Triggering growth momentum will be the watchword when new Reserve Bank of India (RBI) Governor D Subbarao undertakes the mid-term review of the annual policy with the Bankers tomorrow, chalking out the course of the monetary policy for the second half of 2008-09 amidst the turbulent global financial conditions having an indirect impact on the Indian economy.
He does not have the dilemma of choosing between growth and containing inflation like his predecessor Y V Reddy as contours drawn by the Apex Bank during the recent weeks have clearly indicated that it was more concerned with growth and the policy directions will be altered to ensure that the growth momentum is stepped up.
The global meltdown is likely to impact the economic growth of the country with the Gross Domestic Product (GDP) growth likely to be lower at around seven per cent this year, according to analysts.
Though the strict controls by the Apex Bank had to some extent insulated the Indian banking system from buckling to the global crisis, there had been an indirect attack on the economy due to the recessionary trends.
Expansion of credit will be the buzzword for the RBI for the ensuing peak credit season with the market battered by sustained liquidity crunch in the market following Foreign Institutional Investors selling furiously in the Indian bourses to meet the US dollar demand thereby pushing the key indicies of these bourses to new lows. The 30-scrip Sensex of the Bombay Stock Exchange (BSE), which rode to a new high of 21,206.77 in January, touched a new bottom today at 9,681.28 points during early trade today after opening poorly at 9,683.41 due to global sentiments. Sensex went down below the five figure mark during the year on October 20 when it touched 9,975.35 points due to the bearish market triggered by large scale selling by Foreign Institutional Investors.
Governor Subbarao had in conjuncture with the Union Finance Ministry had resorted to a series of measures to check the heightened liquidity concerns during the last few weeks by cutting the Cash Reserve Ratio (CRR) by 250 basis points to 6.5 per cent and topped it with a whopping one per cent cut in the repo rate (rate at which RBI purchases securities from banks) to eight per cent. A host of other measures, including a 14-day special Liquidity Adjustment Facility to bail out Mutual Funds from liquidity crisis to the tune of Rs 20,000 crore, had also been taken by the Apex Bank to stabilise the market. These measures had infused additional liquidity to the tune of Rs 1,40,000 crore in the banking system.
With less than two days for the review, the RBI in another major decision on late Wednesday night eased the norms for external commercial borrowings by the corporate sector allowing firms to raise upto USD 500 million of foreign debt in a year through the automatic route and for local or overseas expenses. The new norms also increased the cap on borrowing costs significantly.
The corporate sector, however, felt that in the near term the easing of the ECB norms might not benefit in view of the sorry state of affairs with the global financial market. However, in the long term, it should help the companies.
The steps so far taken, especially the repo rate cut, would lead to a cut in interest rates by the Banks in the next few months to enable increased credit offtake, analysts feel.
However, Bankers feel that there had not been a slow down in the credit offtake as it had soared to 29 per cent according to latest data released by the Central Bank. As on October 10, the credit offered by banks had increased to Rs 20,98,000 crore, up by 2.5 per cent from previous fortnight's figures and 29 per cent over the corresponding period last year. The Apex Bank had targetted a 20 per cent growth in credit this fiscal. The deposits as on October 10 grew by 21.4 per cent year on year.
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