Monetary & Credit Policy mid-term review expectations

 R V JOSHI

 Managing Director

 STCI

 Dr Y V Reddy, while assuming charge as the Reserve Bank of India (RBI) governor, indicated the continuance of the existing policy stance along with changes as and when warranted.

 This being his first policy as the governor, there are deliberations on the extent of continuity and change that might be observed in the upcoming review.

 Given that RBI has been proactive in creating an environment to support domestic growth, any change in the soft interest rate stance is unlikely.

 Some upward revision in the GDP growth rate and down ward revision in the inflationary outlook for this fiscal is expected - thanks to good monsoons this year and the continued buoyancy in the services sector.

 While such growth expectations often co-exist with a steep yield curve, there is concern about its present flatness.

 Flexibility in the overnight rate as per the daily liquidity situation may allow the RBI to induce some steepness in the curve.

 The RBI appeared uncomfortable with excessive volatility in financial markets witnessed during the last fortnight. With the 10-year benchmark yields falling below the psychological 5.00 per cent (reaching 4.94 per cent) mark in the third week of October 2003, there had been some market expectations of it even touching the levels of 4.75 per cent.

 It was at this point that the market reacted to RBI