RBI MONETARY POLICY:
2011-12 (Apr-Mar)
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NW18: Highlights of RBI's Monetary Policy Statement for 2011-12(Apr-Mar) NewsWire18, Tuesday, May 3


MUMBAI - Following are the highlights of the Reserve Bank of India's Monetary Policy Statement for 2011-12 (Apr-Mar):


MEASURES

* RBI Policy shifts to single rate regime
* Operating target of policy to be weighted average call money rate
* Hikes Repo Rate 50 bps to 7.25% with immediate effect
* Ups Reverse Repo Rate 50 bps to 6.25% with immediate effect
* Keeps Bank Rate unchanged at 6.0%
* Keeps Cash Reserve Ratio unchanged at 6.0%
* Ups savings bank rate to 4.0% from 3.5% with immediate effect
* Starts marginal standing facility for banks at 8.25%
* To foster price stability, sustain medium-term growth

PROJECTIONS

* Projects FY12 GDP growth in 7.4-8.5% range
* Projects Mar-end inflation at 6.0% with upward bias
* Projects FY12 money supply growth at 16%
* Projects banks' FY12 credit growth 19%
* Projects banks' FY12 deposit growth at 17%
* See Apr-Dec inflation close to Mar-end level
* Inflation projection factors in fuel price hike

OPERATIONAL CHANGES

* RBI Policy incorporates some suggestions of Mohanty panel
* Marginal standing facility effective from May 7
* To issue separate guidelines for marginal standing facility
* Interest rate corridor to be 200 bps
* Reverse Repo Rate to be function of Repo Rate
* Retain flexibility to change interest rate corridor
* Shift to single rate to accurately signal policy stance

STANCE

* Steps to curb inflation, anchor inflationary expectations
* Policy steps to rein in demand pressures
* Policy steps to sustain growth medium-term

INFLATION

* Inflation persistently above comfort level
* Surge in non-food inflation suggests firm demand pressure
* Global commodity price uncertainty risk to India inflation
* Surge in crude oil yet to pass to domestic prices
* Impact of monetary tightening still unfolding
* Clear need to persist with anti-inflationary stance
* Signs of growth moderation emerged in late FY11
* Growth moderation to ease demand-side inflation
* Demand pressure to ease H2 on growth slowdown, monetary steps
* To maintain liquidity situation in balance
* Inflation was primary macroeconomic concern FY11
* Inflation driven by structural, transitory factors
* Food, fuel, power group added 60% to WPI rise Apr-Jul
* WPI surge Dec-Mar on fuel, power, non-food manufactured goods
* Inflationary pressure from food clearly became generalized
* Money supply growth eased FY11 on slow deposit growth
* Money supply growth eased also on high currency growth

GROWTH

* Despite IIP slowdown, factors imply strong economic activity
* Manufacturing companies' order book up 7% Q3 vs 9% Q2
* Order book growth suggest sustained demand with some easing
* Business expectation index rose in Q2, Q3 FY11
* Leading indicators show growth momentum in services sector

PRUDENTIAL, BANKS

* To adhere to begin Basel-III from January 2013
* Studying Basel-III norms for apt implementation
* Disseminating information on Basel-III to banks
* Preparing norms for internal rating under Basel-III for bks
* Ups banks' provisioning on "certain" NPAs
* Provisioning on banks' sub-standard loans hiked to 15% vs 10%
* Additional 10% provision on unsecured sub-standard loans
* 25% provision on secured portion of up to 1-yr doubtful loans
* 40% provision on secured portion of 1-3 yr doubtful loans
* 2% provision on recast loans in standard assets for 1st 2-yr
* Restructured NPAs upgraded to standard to have 2% provision
* Caps banks fund into debt MFs liquid plans at 10% of net worth
* 6-mo to comply to banks with over 10% invest in MF liquid plans
* Guidelines on foreign bank presence being formulated
* Draft norms on new bank licenses being finalized
* Panel for holding co structure for banks to give report end-May
* Set up panel to review supervisory policies for banks
* Panel set up for reviewing norms for NBFCs
* Panel for review of NBFC norms to submit report end-Jun
* Transaction worth 610 mln rupee/mo settled via mobile-banking
* Bk loans to micro finance cos Apr 1 onwards to be priority sector
* To issue norms on credit default swaps shortly
* Short sale period in gilts extended to 3-mo vs 5-day now
* Money supply growth eased also on high currency growth
* Greater convergence in base rates of major banks
* Effective lending rates may rise to 10.3% FY12 vs 9.7% FY11
* Non-bank sources of funds, mainly FDI declined FYll vs FY10
* Funds from bks more than offset fall in non-bk fund sources

GLOBAL

* Global recovery expected to sustain in 2011
* Growth in emerging economies expected to decelerate
* Current account deficit to ease to 2.5% FY11 vs 2.8% FY10
* Global commodity price rise poses downside risk to growth
* Global oil demand may rise on economic reconstruction

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