RBI hikes repo, reverse repo rates by 25bps

 Following is the Statement by Dr. Y. Venugopal Reddy, Governor, Reserve Bank of India on the Third Quarter Review of Annual Monetary Policy for the Year 2005-06

This Review consists of three sections: I. Assessment of Macroeconomic and Monetary Developments; II. Stance of Monetary Policy; and III. Monetary Measures. An analytical review of macroeconomic and monetary developments was issued, a day in advance, as a supplement to this Review, providing the necessary information and technical analysis with the help of charts and tables.

 I. Assessment of Macroeconomic and
Monetary Developments

 Domestic Developments
Macroeconomic activity has firmed up as evident from estimates of Gross Domestic Product (GDP) for the second quarter (Q2 or July-September) of 2005-06 by the Central Statistical Organisation showing real GDP growth at 8.1 per cent for the first half of the year, one percentage point higher than in the first half of last year. More recent data also suggest that growth is, by and large, well spread across various sectors of the economy.

 The progress of the North-East monsoon has been satisfactory, although somewhat concentrated in a few regions. According to the India Meteorological Department, cumulative rainfall up to December 31 was 10 per cent above normal for the country as a whole with excess/normal rain in 17 out of the 36 meteorological sub-divisions. The total water storage in the 76 major reservoirs in the country was 63 per cent of capacity at the full reservoir level up to January 13, 2006, higher than 43 per cent a year ago as well as the ten-year average of 50 per cent. These conditions augur well for rabi production. The progress of rabi activity and advance estimates of kharif production are encouraging. Thus, the foodgrains production target of 215 million tonnes is within striking range and sizeable year-on-year increases are also anticipated in the production of non-food crops. Accordingly, real GDP originating from agriculture and allied activities is poised to show higher growth in the second half of 2005-06 than 2.0 per cent estimated for the first half of the year.
 
The pick up in growth of real GDP originating in industry to 8.8 per cent in the first half of the year as against 8.3 per cent in April-September, 2004 was led by an expansion of 10.2 per cent in the manufacturing sector. In subsequent months, industrial activity has remained resilient on the back of sustained growth in the manufacturing sector, despite some slowdown in the performance of the infrastructure industries. During April-November, 2005 the index of industrial production (IIP) rose by 8.3 per cent as against 8.6 per cent in the corresponding period of the preceding year. Manufacturing output recorded a growth of 9.4 per cent as against 9.1 per cent a year ago. Mining and quarrying and electricity generation decelerated. The production of capital goods and consumer goods