The Reserve Bank of India’s (RBI’s) Annual Monetary Policy for 2011-12 shows its unwavering commitment to fighting rampant inflation, which poses significant risks to future growth.
Pledging fighting inflation was its top priority, RBI raised the policy rates by 50 basis points (bps) and set its indicative target for M3 (cash and most bank deposits) growth at 16.0 per cent (year-on-year) in 2011-12. The relatively stronger data points on core industrial output and Purchasing Managers Index have raised RBI’s comfort in continuing with its tightening cycle in an uninterrupted fashion.
Moreover, RBI has taken forward the process of banking reforms by raising the savings bank deposit rate from 3.5 per cent to 4.0 per cent with immediate effect. At the same time, it has given permission to banks to classify their loans to microfinance institutions (MFIs) as priority sector advances, given their conformity with RBI’s regulatory norms.
RBI has also raised the provisioning requirements on certain categories of non-performing and restructured advances, a step to control excessive risk taking through a tighter prudential provisioning framework.
RBI’s indicative 2011-12 growth targets for deposits and credit at 17 per cent and 19 per cent, respectively, and end-March inflation target at 6 per cent (with an upward bias) are in alignment with its broader objective of fighting inflation at all costs.
The policy unveiled on Tuesday is indeed a prudent and credible policy, in the context of several economic uncertainties faced by our country at this point of time.
MD Mallya, Chairman & Managing Director, Bank of Baroda
