The Reserve Bank of India (RBI) will announce its mid-term review of the monetary and credit policy for 2001-02 on Ocober 22.
Although the RBI has made it clear that it would be a 'review' and hence no policy measures can be expected, the banking industry is hopeful of a relook at the benchmark bank rate and cash reserve ratio (CRR).
The finance ministry has been strongly pitching for a softer interest rate regime even though RBI governor Bimal Jalan has refused to respond to Yashwant Sinha's call.
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The RBI annual report, released in the last week of August, reiterated its bias towards low interest rate and the cushion of ample liquidity for the corporates through low CRR.
The policy will be announced against the backdrop of a distinct economic slowdown, slack exports, tardy credit offtake and ample liquidity in the system. Between April 1 and September 7, the non-food credit of the banking sector went up by Rs 6,122 crore compared with Rs 20,746 crore in the corresponding period of the last year.
With inflation under control at around 5 per cent and the rupee holding steady at 48 levels against a dollar, the RBI may not like to disturb the current interest rate regime, said some bankers.
According to Mohan Nagarajan, chief economist, Care, any cut in the bank rate and CRR, though would spur credit demand only temporarily, could see too much liquidity exerting inflationary pressures and also play up the rupee.
Nagarajan said, "In the current circumstances, the RBI does not have too many cards to play. I doubt if a cut in the bank rate alone will spur credit offtake and hence boost consumer demand. Action is urgently required on the fiscal front by dropping the direct and indirect taxation rates so as to boost the investible surplus of individuals and give a leg-up to the corporate profits. Only after this step is taken, the RBI can come up with viable monetary policy intitiatives."
In the run-up to the credit policy, the RBI has taken a string of policy measures to ward off the uncertainties in the markets and prop up exports.
The measures include, opening a window for auction of select government securities to infuse liquidity, intervenion in the forex market through dollar sales, allowing banks to extend loans to brokers under marging trading and cutting the export finance rate by 1 percentage point.