Who are the priority?“You go to the market, the price of rice has risen, dal has become costly, so shouldn't the price of money rise? There has to be a balance. When the prices of commodities increase, and you wish the price of commodities wasn't this high, do you want the price of money not to increase? So many people have rice, how many people take loans? Who are the priority? Those who eat rice or those who take loans?”Will the growth slowdown?This is a very very marginal moderation and less than the moderation in the rest of the world. We will continue to be the second fastest growing economy in the world. Currently, there is an exaggerated bearishness on various aspects. This is as dangerous as exaggerated bullishness, which in some ways is the reason for what we are today.Won't they laugh all the way to bank anymore? Three-four years ago, banks had said they would be in trouble as interest rates rise. They said profitability would be hit. But profitability has increased and is increasing. Stock market variations may happen. But as far as the sector is concerned, you cannot say profitability of banks has not increased in the past four years. Banks, by and large, are strong and healthy; they have been helping growth. Will he be around the next time?The governor of RBI will present the next policy review.BasicsRepo rate: This is the rate at which the RBI lends to banks. Raised by 50 basis points to 9 per cent, at a 7-year high now.Cash reserve ratio: The CRR is the percentage of banks’ deposits they must keep as cash with the RBI. To rise by 25 basis points to 9 per cent, effective August 30, at an 8-year high. Reverse repo rate: This is the rate at which the central bank absorbs funds from the market. It impacts government bond yields and short-term bank deposits. Unchanged at 6 per cent.Bank rate: Banks use this rate to price their long-term loans to individuals and companies. Unchanged at 6 per cent.Growth forecast: The RBI expects 2008-09 economic growth of around 8 per cent, down from 8-8.5 per cent.Inflation aim: To bring down inflation close to 7 per cent by March 2009, up from 5-5.5 per cent.Money supply: Aims for around 17 per cent money supply growth in 2008 growth: Seen at around 20 per cent in 2008 policy review: Second-quarter review on October 24.Interest is not the only factor determining credit growth (Chanda Kochhar ICICI Bank)The RBI has accorded top priority to managing inflation and inflationary expectations. It is heartening to note that the central bank has maintained a projection of 8 per cent GDP growth for FY09. The objectives of achieving 8 per cent GDP growth and bringing down inflation at 7 per cent by fiscal-end will entail absorption of pain in the near term. Markets tend to react conservatively when faced with such tightening policies from the Central bank. So, it is not entirely surprising to find the interest rate structure of the banking system going through a dynamic review and adjusting to the evolving market realities. Interest rates are not the only factor determining credit growth rates; the growth momentum of the economy also impacts credit demand. In the context of RBI’s projection of GDP growth rate, it is reasonable to assume that investment growth will continue and credit growth will be supported at 15-20 per cent level. Inflation might moderate in the months to come (O P Bhatt State Bank of India)Despite continuing fiscal, monetary and trade measures over the last twelve months, inflation has trended up to a 13-year high, tracking global trends. Thus, with the overriding objective of taming inflation, RBI has increased the repo-rate by 50 basis points to 9 per cent with immediate effect and the CRR has also been increased by 25 basis points to 9 per cent. The measures will check liquidity in the system and curtail monetary expansion to around the targeted 17 per cent. Inflation is expected to moderate from the current high levels in the months to come and a noticeable decline in inflation is expected in the last quarter of 2008-09. Accordingly, RBI has now revised its inflation projection to 7 per cent by March 2009 from the current level of about 12 per cent. At the same time, with policy tightening, RBI has rightly expressed concerns about the credit quality and urged banks to take-up thorough credit appraisals.Clear path commendable in these uncertain times (Meera sanyal ABN Amro)The latest rounds of monetary tightening can be construed as “aggressive”. That is perhaps justified, given the strong upside risks to inflation. Moreover, given that fiscal policy is significantly expansionary, the RBI has to counter that too. These evolving macro-economic dynamics make it imperative for the central bank to remain hawkish.The market did not expect the RBI to act so tough ( Vishwavir ahuja Bank of America)REDDY believed that there was room for another round of tightening to tame inflation. The belief probably stems from excessive aggregate demand, volatile and uncertain global environment apart from internal factors like cost pressures, fiscal deficit and supply side issues. The RBI will have to reinforce its hawkish rhetoric with policy actions. Growth slowdown is better than speeding inflation (SUBIR GOKARAN Standard & Poor’s)Though a hike in the repo rate was not expected, the fact is that RBI’s monetary tightening has finally started feeding through the system. The process is working and the adjustment is finally happening. Also, the fiscal situation has recently taken a bad turn and led to a demand stimulus in the economy, which needed to be controlled by the RBI.
