RBI keep interest rate unchanged

By agencies   |   Wednesday, 19 April 2006, 07:00 Hrs
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NEW DELHI: The apex bank of the country, Reserve Bank of India (RBI) has announced the Credit Policy 2006-07. There have been no hikes in reverse repo rate, repo and bank rate. It keeps reverse repo rate unchanged at 5.5 percent, repo rate unchanged at 6.5 percent, bank rate unchanged at 6 percent and CRR unchanged at 5 percent.

It will contain inflation at 5-5.5 percent in 2007 financial year. The 2007 financial year GDP growth is seen at 7.5-8 percent. However, provisioning on Personal and Home loans above $4.5 million were increased by 1 percent versus 0.4 percent. The RBI has introduced 'When Issued' market in G-Secs, and will be issuing guidelines shortly.

RBI has also increased provisioning on commercial real estate from 0.4 percent to 1 percent. Loans against shares will also bear an increase from 0.4 percent to 1 percent. RBI has also surged the rate cap on NRI deposit by 25 bps.

Further, banks exposure to venture capital funds will now be at par with 'Equity’. Also, the LAF Rate corridor has been cut to 100 bps versus 200 bps. The overall outlook for Industry remains positive despite uncertainties. Non-food credit is projected to grow by 20 percent.

The Policy allows mutual funds to access Electronic Bond Rate, and pension funds to access Electronic Bond Trade. RBI will also fix a cap on loans to government on a quarterly basis.

RBI says that pass-through of global oil price rise is only partial. It ups risk weight on banks and property loans to 150 percent. The RBI sees at 15 percent. It will also start a negotiated quote driven system for call markets. It has urged legal changes to enable all banks to raise capital via preference shares.

The International rate ceiling on NRE rupee deposits has been raised to 1 percent. The RBI has drawn up a plan to consolidate illiquid government a bond and it has also announced quarterly WMA limits versus half-yearly limits earlier.

State loans have been advised to develop advance-borrowing calendar. State loans will also be included in LAF repo operations. The policy reveals that retail credit is growing between 24-41 percent aggregate deposits are up 22 percent from 12.8 percent of a year ago.

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