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Annual Monetary Policy Statement for the Year 2012-13
-Announced on the 17th April 2012 by Dr. D. Subbarao, Governor, Reserve Bank of India

Introduction This Annual Policy for 2012-13 is set in a challenging macroeconomic environment. At the global level, concerns about a crisis have abated somewhat since the Third Quarter Review (TQR) in January 2012. The US economy continues to show signs of modest recovery. Large scale liquidity infusions by the European Central Bank (ECB) have significantly reduced stress in the global financial markets. However, recent developments, for example in Spain, indicate that the euro area sovereign debt problem will continue to weigh on the global economy. Growth risks have emerged in emerging and developing economies (EDEs). And, amidst all these, crude oil prices have risen by about 10 per cent since January and show signs of persisting at current levels.

2. Domestically, the state of the economy is a matter of growing concern. Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed. Significantly, these trends are occurring in a situation in which concerns over the fiscal deficit, the current account deficit and deteriorating asset quality loom large. In this context, the challenge for monetary policy is to maintain its vigil on controlling inflation while being sensitive to risks to growth and other vulnerabilities.

3. In the above context, this Statement should be read and understood together with the detailed review in Macroeconomic and Monetary Developments released yesterday by the Reserve Bank.

4. This Statement is organised in two parts. 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 domestic growth, inflation and monetary aggregates; Section III explains the stance of monetary policy; and Section IV specifies the monetary and liquidity measures. Part B covers developmental and regulatory policies and is organised into five sections: Financial Stability (Section I), Financial Markets (Section II), Credit Delivery and Financial Inclusion (Section III), Regulatory and Supervisory Measures for Commercial Banks (Section IV) and Institutional Developments (Section V).

Part A. Monetary Policy

I. The State of the Economy    Read full text

II. Outlook and Projections    Read full text

III. The Policy Stance    Read full text

IV. Monetary Measures   Read full text

Part B. Development and Regulatory Policies

59. This part of the Statement reviews the progress in various developmental and regulatory policy measures announced by the Reserve Bank in the recent policy statements and also sets out new measures.

60. Financial institutions and markets continue to operate in an uncertain global environment. Efforts are underway globally to reform the regulatory and supervisory frameworks; augment capital and liquidity buffers; improve risk management practices; adopt prudential compensation models; institute sound information technology (IT) governance and security systems; and bring about transparency in operations as well as reporting. These and a host of other measures are intended to enhance the resilience and risk bearing capacity of financial institutions and markets so as to safeguard the financial system from recurrent crises.

61. In India, reforms have continued with a view to building a robust and resilient financial system. More stringent capital and liquidity measures for commercial banks have been implemented and steps have been taken to build provision buffers. Basel III capital and liquidity standards for banks are in the process of being prescribed. New prudential compensation practices have been adopted. Various institutional mechanisms and tools for monitoring systemic risks have been put in place. Efforts are being made to develop effective macroprudential supervision.

62. Apart from commercial banks, measures have been taken to strengthen urban co-operative banks (UCBs), non-banking financial companies (NBFCs) and micro-finance institutions (MFIs). Alongside reforms in various segments of financial system, the focus on financial inclusion continues. The Reserve Bank has also engaged with banks to improve customer service.

I. Financial Stability    Read full text

II. Financial Markets    Read full text

III. Credit Delivery and Financial Inclusion    Read full text

IV. Regulatory and Supervisory Measures for Commercial Banks    Read full text

V. Institutional Developments   Read full text

An analytical review of macroeconomic and monetary developments was issued a day in advance as a supplement to this Statement, providing the necessary information and technical analysis with the help of charts and tables. ...Click Here For Macro economic and Monetary Developments : 2011-12

....Click Here For Highlights of Annual Policy Statement for the Year 2012-13

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