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Annual Policy Statement for the Year 2005-06
-Announced on the 28th April 2005

Dr. Y.Venugopal Reddy, Governor, Reserve Bank of India has announced Annual Policy Statement for the Year 2005-06

The policy Statements of the Reserve Bank provide a framework for the monetary, structural and prudential measures that are taken from time to time against the background of an assessment of macroeconomic and monetary developments. In order to provide a distinctive focus between monetary policy and developmental policies, the format of presentation of this Statement has been modified while broadly following the pattern already set in previous years.

2. The Statement consists of two parts: Part I. Annual Statement on Monetary Policy for the Year 2005-06; and Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2005-06.

3. There will be a Mid-term Review of the annual policy Statement in October, as in the past, covering both Part I and Part II of the Statement. In addition, there will be a First Quarter Review of Part I of the Statement in July and a Third Quarter Review in January. While the annual Statement and the Mid-term Review will continue, as in the past, to be presented in the meeting with bankers, the quarterly reviews will be released to the Press. The proposed quarterly reviews of monetary policy should provide the opportunity for structured communication with markets on a more frequent basis while retaining the flexibility to take specific measures as the evolving circumstances warrant. Tentatively, for the current financial year, the dates planned for the First Quarter Review, the Mid-term Review and the Third Quarter Review are July 26, 2005, October 25, 2005 and January 24, 2006, respectively.

Part I. Annual Statement on Monetary Policy for the Year 2005-06

I. Review of Macroeconomic and Monetary Developments during 2004-05

II. Stance of Monetary Policy for 2005-06

III. Monetary Measures

Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2005-06

64. A stable and efficient financial sector is essential for sustained economic growth. In this context, the annual policy Statements as well as mid-term Reviews of RBI have been continuously focusing on the developmental and regulatory measures to strengthen the financial system. The policy Statements also discern the links among monetary, credit and regulatory policies involving the overall structural transformation of the real and financial sectors. The emphasis has been on safeguarding the financial stability of the overall system through effective monitoring and assurance of implementation of regulations. In this direction, the overall approach has been that of reorienting the role of RBI for improving institutional soundness, strengthening the regulatory and supervisory processes in alignment with international best practices and developing the necessary technological and legal infrastructure. While the approach towards the reforms has been gradual and relevant to the context, consultative processes and appropriate sequencing of measures have succeeded in aiding growth, avoiding crises, enhancing efficiency and imparting resilience to the system. The aim is to move towards a system that is responsive to the needs of the common person.

65. In order to reinforce stability of the overall system and to serve the common person, the emphasis of the policy Statement, at this stage, is on certain key areas. First, it is useful to debate the current regulations on interest rates and stipulations relating to priority sector in terms of their contemporary effectiveness in delivering adequate credit at appropriate prices. Second, to facilitate a balanced development of the financial system, it is necessary to further develop money, forex and government securities markets. Third, there is a need to bridge the financing gaps in agriculture and in small and medium enterprises in order to enhance credit delivery. Fourth, from a systemic point of view, sound corporate governance practices, better risk management and adherence to prudential norms within the financial sector need to be encouraged. Fifth, in order to strengthen the payment and settlement systems, a roadmap for development and application of technology in the financial sector in the medium-term becomes important. Finally, as financial institutions expand and become more complex, it is imperative to ensure availability of quality services to all sections of the population.

I. Interest Rate Prescriptions

II. Financial Markets

III. Credit Delivery Mechanisms

IV. Prudential Measures

V. Institutional Developments

Mid-term Review A review of the annual policy Statement will be undertaken on October 25, 2005 and will contain such other changes/measures as may be necessary in regard to developmental and regulatory policies for the second half of the year.

Click Here For Highlights of RBI's Annual Policy Statement for 2005-06

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