RBI keeps interest rates intact, efforts to harness inflation

Tuesday, 24 April 2007, 07:00 Hrs
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Mumbai: In an effort to harness inflation and prevent further appreciation of the rupee, the Reserve Bank of India (RBI) Tuesday launched the monetary and credit policy for 2007-08 keeping all the interest rates intact.

As the RBI has kept cash reserve ratio (CRR), repo rate and reverse ratio unchanged, interest rates for home loans, car loans are expected to remain the same.

The central bank has also made a GDP (gross domestic product) growth projection of 8.5 percent for the current financial year, targeting the inflation growth at 5-5.5 percent for the year.

"We expect the GDP to grow to 8.5 percent. We also expect the world growth to decelerate. As far as inflation is concerned, we expect to bring down inflation to around five percent during the current year," said RBI Chairperson Y.V. Reddy while announcing the credit policy before chief executives of all commercial banks.

According to the RBI, infrastructure constraints remain a prime area of concern for the growth of the Indian economy.

The RBI, which had over the past 12 months raised its key lending rate or repo rate, left it steady at 7.75 percent. It also kept its key borrowing rate or the reserve repo rate unchanged at 6 percent.

The credit policy announcement left the cash reserve ratio unchanged at the previously announced increase to 6.5 percent due on April 28.

"The RBI has also reduced the interest rate ceiling on non-resident deposits. Indian companies can now repay more external commercial borrowings ahead of schedule upto $400 million."

Reddy said the central bank has further liberalised individual foreign remittance by doubling the present limit to $100,000 per financial year for capital transaction.

It said the price risk hedging might be allowed in commodities such as aluminium, copper, lead, zinc and nickel in international commodities exchanges.

The RBI chairperson said credit guarantee scheme would be introduced for farmers in distress.

"Overseas investment ceiling for mutual funds has been increased to $4 billion from $3 billion. Listed companies can now invest up to 35 percent of the net worth as against 25 percent earlier."

The RBI has increased overseas investment limit for companies to 35 percent from the previous 25 percent, giving a relief to Indian corporates who expressed concerns prior to the announcement.

According to Reddy, one of the main objectives of the monetary policy was to curb inflation without hurting or compromising growth.

"The overall monetary policy will enable the India economy to take the next step towards globalisation."

Riding on the RBI credit policy announcement, Indian markets responded positively, including all the leading industry chambers of the country hailing the policy.

Welcoming the credit policy Finance Minister P.Chidambaram said, "It's aggressive policy and we support RBI's decision."
Source: IANS
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