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Annual Monetary and Credit Policy for the year 2004-2005

Domestic Developments

1. GDP growth for 2004-05 projected at 6.5-7.0 per cent.

2. Assuming no significant supply shocks and appropriate management of liquidity, the inflation rate projected for policy purposes at around 5.0 per cent during 2004-05.

3. Growth in reserve money and Money supply (M3) were higher during 2003-04 reflecting capital inflows; the expansionary impact of foreign currency assets, however, was neutralised to a large extent by substantial open market operation (OMO) including sustained repo operations under LAF.

4. Sustained pick-up in non-food credit since September; total flow of resources to the commercial sector was higher than last year.

5. Government market borrowing programme in 2003-04 completed at a much lower cost; while noting reduction in fiscal deficit, need to step up capital expenditure stressed.

6. Further reduction in interest rates in money and government securities markets observed in 2003-04.

7. Public sector banks have reduced their BPLR in the range of 25-100 basis points.

8. RBI to continue with its policy of active liquidity management; Market Stabilisation Scheme (MSS), is an additional tool.

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