Macroeconomic and Monetary Developments : Third Quarter Review 2009-10
-Released on January 28, 2009
The overall monetary and liquidity conditions prevailing in the system reflected the accommodative monetary policy stance of the Reserve Bank. This stance, so far, has remained geared towards meeting the goals of supporting a stronger recovery in growth while ensuring completion of the large borrowing programme of the Government without exerting pressures on the overall interest rate structure.
Broad money (M3) growth exhibited some moderation in recent months and was at 16.5 per cent as on January 15, 2010, as against the indicative money growth projection of 17.0 per cent presented in the Second Quarter Review of Monetary Policy 2009-10.
On the component side of money growth, deposit growth of scheduled commercial banks at 16.8 per cent was lower than the 18.0 per cent indicative projection in the Second Quarter Review of Monetary Policy 2009-10. There was a noticeable shift in the composition of deposits - growth in time deposits decelerated, partly reflecting the decline in time deposit interest rates during the year.
On the sources side of money growth, as the banking system’s growth in credit to the private sector decelerated, credit to the Government remained the key driver of money growth. Since the third quarter of 2009-10, however, growth in commercial banks’ credit to the Government has also moderated.
Non-food credit growth, which decelerated over twelve months following the peak in October 2008, has shown a reversal in the trend since November 2009. Non-food credit growth of Scheduled Commercial Banks (SCBs) at 14.4 per cent as on January 15, 2010 remains lower than both 21.9 per cent growth seen in the corresponding period of last year and 18.0 per cent indicative growth presented in the Second Quarter Review of Monetary Policy 2009-10.
Availability of resources from the nonbanking sources increased significantly by about Rs.50, 000 crore during April-January 2009-10, primarily in the form of IPOs, private placements, net issuance of CPs by corporates, and inflows under foreign direct investment.
Pattern of capital flows, pace of the recovery in demand for credit from the private sector and the fiscal stance would influence the monetary and liquidity conditions in the near term.
The financial markets in India remained orderly and reflected the overall expectations of stronger recovery in the economy, the impact of higher capital inflows, and the overriding influence of the accommodative monetary policy stance of the Reserve Bank.
Money market rates remained well anchored within the LAF corridor, and in the CBLO market, which accounts for about 80 per cent of the volume in the money market, the rates remained below the call money rates.
Over 98 per cent of the net market borrowing programme of the Central Government has been completed so far.
In the secondary market, the yield on government securities exhibited some hardening in the recent months, reflecting large supply of government securities and emerging inflationary pressures.
In the credit market, both deposit and lending rates showed moderation, reflecting lagged transmission of the policy rate changes of the Reserve Bank.
Stock markets, though volatile, sustained the gains of previous months. Among the EMEs, India was one of the strongest performers.
In the primary market, activities picked up in terms of IPOs and private placements. Net mobilisation by the mutual funds exhibited significant increase.
With the return of capital inflows, and the resultant surplus conditions in the forex market, the Indian rupee appreciated against major international currencies.
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