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Second Quarter Review of Monetary Policy 2010-11
-Announced on the 2nd November 2010 by Dr. D. Subbarao, Governor, Reserve Bank of India


This Second Quarter Review is set in the context of a mixed backdrop of persistent sluggishness in advanced economies and positive signals from emerging market economies (EMEs). While recovery in advanced economies has slowed in the second half of 2010, EMEs continue to show strong growth. The fragile and uneven nature of the recovery and large unemployment in advanced economies raise concerns about the sustainability of the global recovery, which has prompted the International Monetary Fund (IMF) to project a lower world GDP growth of 4.2 per cent in 2011 as compared with 4.8 per cent in 2010.

2. The rising concerns about the slowing momentum of recovery have prompted the central banks of some advanced economies to initiate (or consider initiating) a second round of quantitative easing to further stimulate private demand. While the ultra loose monetary policy of advanced economies may benefit the global economy in the medium-term, in the short-term it will trigger further capital inflows into EMEs and put upward pressure on global commodity prices.

3. On the domestic front, economic activity is firmly in place. The 8.8 per cent GDP growth for Q1 of 2010-11 suggests that the economy is operating close to the trend growth rate, driven mainly by domestic factors. The South-West monsoon was normal which should boost agricultural output and rural demand. Most industrial and service sector indicators also point towards sustained growth.

4. Notwithstanding some moderation in recent months, headline inflation remains significantly above its medium-term trend. What is of concern is that while non-food manufactured products inflation has stabilised, food inflation has not shown the expected post-monsoon moderation. Persistently rising food prices even in the wake of a normal monsoon raise concerns about the structural nature of food inflation and its consequent impact on inflationary expectations. Further, when the economy is growing close to trend, the risks of structural food inflation spilling over into prices of other commodities are significant and that could potentially offset the recent moderation.

5. This statement is organised in two parts.

Part A.
Monetary Policy

I. The State of the Economy ... Click Here

II. Outlook and Projections ... Click Here

III. The Policy Stance... Click Here

IV. Monetary Measures... Click Here

Part B
Developmental and Regulatory Policies

I. Financial Stability ... Click Here

II. Interest Rate Policy ... Click Here

III. Financial Markets... Click Here

IV. Credit Delivery and Financial Inclusion... Click Here

V. Regulatory and Supervisory Measures for Commercial Banks... Click Here

VI. Institutional Developments... Click Here

NOTE; Part A covers Monetary Policy and is divided into four sections: Section I provides an overview of global and domestic macroeconomic developments; Section II sets out the outlook and projections for growth, inflation and monetary aggregates; Section III explains the stance of monetary policy; and Section IV specifies the monetary measures.

Part B covers Developmental and Regulatory Policies and is organised in six sections: Financial Stability (Section I), Interest Rate Policy (Section II), Financial Markets (Section III), Credit Delivery and Financial Inclusion (Section IV), Regulatory and Supervisory Measures for Commercial Banks (Section V) and Institutional Developments (Section VI).

Click Here For Press Statement by Dr. D. Subbarao, Governor on First Quarter Review

An analytical review of Macroeconomic and Monetary Developments in the Second Quarter of 2010-11 was issued on 1st Nov 2010, as a background to the Second Quarter Review of Monetary Policy 2010-11 ...Click Here

Highlights of Second Quarter Review of Monetary Policy 2010-11....Click Here

Mixed reactions from Banks, Economists, India Inc on RBI First Quarter Review 2010-11 ....Click Here

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