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Main Page of Third Quarter Review of the Annual Policy Statement for 2007-08 click here

Highlights of Third Quarter Review of the Annual Policy Statement for 2007-08

Bank Rate kept unchanged at 6.0 per cent.

The reverse repo rate and the repo rate under the LAF are kept unchanged at 6.0 per cent and 7.75 per cent, respectively.

The Reserve Bank retains the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors. The Reserve Bank will continue to use this flexibility including the right to accept or reject tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity management.

CRR kept unchanged at 7.5 per cent.

The flexibility to conduct overnight or longer term repo including the right to accept or reject tenders under the liquidity adjustment facility (LAF), wholly or partially, is retained.

Overall real GDP growth projection for 2007-08 at around 8.5 per cent is retained.

The policy endeavour would be to contain inflation close to 5.0 per cent in 2007-08 while conditioning expectations in the range of 4.0-4.5 per cent.

While non-food credit has decelerated, growth in money supply and aggregate deposits of scheduled commercial banks continue to expand well above indicative projections.

High growth in reserve money is driven by large accretion to RBI’s net foreign exchange assets.

Liquidity management will assume priority in the conduct of monetary policy through appropriate and timely action.

Real GDP growth moderated to 9.1 per cent in the first half of 2007-08 from 9.9 per in the first half of 2006-07.

Inflation, based on variations in the wholesale price index (WPI) on a year-on-year basis, eased to 3.8 per cent as on January 12, 2008 from its peak of 6.4 per cent at the beginning of the financial year and from 6.2 per cent a year ago.

As on January 4, 2008 money supply (M3) increased by 22.4 per cent on a year-on-year basis which was higher than 20.8 per cent a year ago and well above the projected trajectory of 17.0-17.5 per cent indicated in the Annual Policy Statement for 2007-08.

In the current financial year, the growth in aggregate deposits of scheduled commercial banks (SCBs), on a year-on-year basis, at Rs.6,00,761 crore (25.2 per cent) was higher than that of Rs.4,44,241 crore (22.9 per cent) a year ago.

On a year-on-year basis, non-food credit of SCBs expanded by Rs.3,82,155 crore (22.2 per cent) as on January 4, 2008 on top of the increase of Rs.4,16,418 crore (31.9 per cent) a year ago.

The year-on-year growth in total resource flow from SCBs to the commercial sector decelerated to 21.7 per cent from 30.1 per cent a year ago.

Banks’ holdings of Government and other approved securities at 29.1 per cent of their net demand and time liabilities (NDTL) as on January 4, 2008 was marginally higher than 28.6 per cent a year ago.

The overhang of liquidity as reflected in the sum of LAF, MSS and the Central Government’s cash balances increased from Rs.85,770 crore at end-March 2007 to Rs.2,58,187 crore on January 17, 2008 before declining to Rs.2,32,809 crore on January 24, 2008.

During the third quarter of 2007-08, money, debt and foreign exchange markets remained generally stable, despite large movements in liquidity conditions.

Rapid growth in turnover in the foreign exchange market was sustained by large surplus conditions in the spot market as average daily turnover increased to US $ 50.1 billion for the quarter ended December 2007 from US $ 27.6 billion in the corresponding quarter of the previous year.

During March 2007-January 2008, pubic sector banks (PSBs) that were earlier paying higher interest rates on longer term deposits, readjusted their interest rates downwards by 25-50 basis points, while those offering lower deposit rates for similar maturity earlier increased their deposit rates by 50-75 basis points.

During March 2007-January 2008, the benchmark prime lending rates (BPLRs) of PSBs increased by 25-75 basis points from a range of 12.25-12.75 per cent to 12.50-13.50 per cent.

The BSE Sensex increased from 13,072 at end-March 2007 to 18,362 on January 25, 2008 registering an increase of 40.5 per cent over end-March 2007.

The gross market borrowings of the Central Government through dated securities at Rs.1,47,000 crore (Rs.1,30,000 crore a year ago) during 2007-08 so far (up to January 25, 2008) constituted 94.6 per cent of the budget estimates (BE) while net market borrowings at Rs.1,03,092 crore (Rs.91,432 crore a year ago) constituted 94.1 per cent of the BE.

Foreign exchange reserves increased by US $ 85.7 billion during the current financial year so far and stood at US $ 284.9 billion on January 18, 2008.

Over the end-March 2007 level, the rupee appreciated by 9.61 per cent against the US dollar, by 8.85 per cent against the pound sterling and by 0.95 per cent against the Japanese yen, but remained unchanged against the euro as on January 25, 2008.

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