RBI's Annual Monetary Policy Statement for the Year 2013-14
- 3rd May 2013
I. The State of the Economy
14. Largely driven by food inflation, retail inflation, as measured by the new combined (rural and urban) consumer price index (CPI) (Base: 2010=100), averaged 10.2 per cent during 2012-13. Even after excluding food and fuel groups, CPI inflation remained sticky, averaging 8.7 per cent. Other CPIs also posted double digit inflation.
15. Significantly, inflation expectations polled by the Reserve Bank’s urban households’ survey, showed slight moderation in Q4 of 2012-13, even as they remained in double digits, reflecting high food prices. Wage inflation in rural areas, which rose by an average of close to 20 per cent over the period April 2009 to October 2012, declined modestly to 17.4 per cent in January 2013. House price inflation, as measured by the Reserve Bank’s quarterly house price index, continued to rise on a y-o-y basis.
16. An analysis of corporate performance during Q3 of 2012-13, based on a common sample of 2,473 non-government non-financial companies, indicates that growth of sales as well as profits decelerated significantly. Early results of corporate performance in Q4 indicate continuing moderation in sales though profit margins increased slightly.
17. Money supply (M3) growth was around 14.0 per cent during Q1 of 2012-13 but decelerated thereafter to 11.2 per cent by end-December as time deposit growth slowed down. There was some pick up in deposit mobilisation in Q4, taking deposit growth to 14.3 per cent by end-March. Consequently, M3 growth reached 13.3 per cent by end-March 2013, slightly above the revised indicative trajectory of 13.0 per cent.
18. Non-food credit growth decelerated from 18.2 per cent at the beginning of 2012-13 and remained close to 16.0 per cent for the major part of the year. By March 2013, non-food credit growth dropped to 14.0 per cent, lower than the indicative projection of 16.0 per cent, reflecting some risk aversion and muted demand. While the Reserve Bank’s credit conditions survey showed easing of overall credit conditions, there was some tightening for sectors such as metals, construction, infrastructure, commercial real estate, chemicals and finance in Q4 of 2012-13.
19. The total flow of resources to the commercial sector from banks, non-banks and external sources was higher at `12.8 trillion in 2012-13 as compared with `11.6 trillion in the previous year. This increase was accounted for by higher non-SLR investment by scheduled commercial banks (SCBs), increase in credit flow from NBFCs, gross private placement and public issues by non-financial entities, and higher recourse to short-term credit from abroad and external commercial borrowings.
20. In consonance with the cuts in the policy repo rate and the cash reserve ratio (CRR) during 2012-13, the modal term deposit rate declined by 11 basis points (bps) and the modal base rate by 50 bps. While the decline in the term deposit rate occurred mostly during the first half, the modal base rate softened by 50 bps to 10.25 per cent in two steps of 25 bps each during Q1 and Q4 of 2012-13. During Q4, 39 banks reduced their base rates in the range of 5-75 bps. The weighted average lending rate of banks declined by 36 bps to 12.17 per cent during 2012-13 (up to February).
21. Liquidity remained under pressure throughout the year because of persistently high government cash balances with the Reserve Bank and elevated incremental credit to deposit ratio for much of the year. The net average liquidity injection under the daily liquidity adjustment facility (LAF), at `730 billion during the first half of the year, increased significantly to `1,012 billion during the second half. In order to alleviate liquidity pressures, the Reserve Bank lowered the CRR of SCBs cumulatively by 75 bps on three occasions and the statutory liquidity ratio (SLR) by 100 bps during the year. Additionally, the Reserve Bank injected liquidity to the tune of `1,546 billion through open market operation (OMO) purchase auctions. The net injection of liquidity under the LAF, which peaked at `1,808 billion on March 28, 2013 reflecting the year-end demand, reversed sharply to `842 billion by end-April 2013.
22. The revised estimates (RE) of central government finances for 2012-13 show that the gross fiscal deficit-GDP ratio at 5.2 per cent was around the budgeted level and within the target set out in the revised roadmap. Budget estimates (BE) for 2013-14 place the gross fiscal deficit-GDP ratio at 4.8 per cent. The envisaged correction is expected to be achieved through a reduction of 0.6 percentage points in the revenue deficit-GDP ratio.
23. On the back of the policy rate reduction and the announcement of a slew of reform measures by the Government and a firm commitment to fiscal consolidation, the 10-year benchmark yield eased from 8.79 per cent on April 3, 2012 to 7.79 per cent on April 30, 2013.
24. The current account deficit (CAD) came in at an all-time high of 6.7 per cent of GDP in Q3 of 2012-13. There are indications that it may have narrowed in Q4. The narrowing was largely on account of the trade deficit declining, with exports returning to positive growth after contracting in the first three quarters and non-oil non-gold imports and gold imports declining. Even as the CAD expanded, the surge in capital inflows in the second half of the year ensured that it could be fully financed.
...GO TO PAGE 1
...Click Here For Macro economic and Monetary Developments : 2012-13
....Click Here For RBI CREDIT AND MONETARY POLICIES (1999-2014)