GDP growth may cross 7 pc: RBI

RBI, in the annual policy for FY-05, has pegged the Gross Domestic Product at 6.5-7 per cent. If acceleration in growth noticed during the third quarter of FY-04 is sustained, the real GDP growth during 2004-05 could well be higher, at around 7 per cent, it had stated.

Reddy said the growth of the US economy, estimated at 4 per cent, would facilitate in global recovery and Indian exports. India’s GDP rate was realistic and sustainable, with a structural shift like favourable policy environment, he said.

‘‘Indian (interest) rates are absolutely in tune with the band of relevance and the domestic consideration indicate to stability,’’ the RBI governor added.

On inflation, which RBI has estimated to be around 5 per cent in FY-05, Reddy said: ‘‘It is not optimistic. Though the international factors like oil and commodity prices have grown, the domestic situation is comfortable, with good monsoon, foodstocks and productivity gains’’.

‘‘Upward pressure on commodity prices may not continue and there is also reason to believe that there is not much scope for further rise in global oil prices,’’ he said.

On the Cash Reserve Ratio (CRR), Reddy said the medium term objective was to bring it down to 3 per cent, but considering the various options available for liquidity management, it was left untouched (at 4.5 per cent).

In the policy, the RBI said that with regard to remuneration of eligible cash balances under CRR at its present level, the bank’s internal group recommended such remuneration was not justifiable.

‘‘No remuneration is appropriate to make CRR most effective,’’ the group argued. However, the group proposed such remuneration should be delinked from the bank rate (currently at 6 per cent) and placed at a rate lower than the repo rate (4.5 per cent).

On the Market Stabilisation Scheme (MSS), the RBI Governor said the introduction of MSS has seen a shift from liquidity adjustment facility (LAF) to the former.

‘‘We still have the flexibility to revise the ceiling (of Rs 60,000 crore) on MSS as per the memorandum with the Union government and also have the facility to use LAF, if required,’’ he added.