No change in monetory policy stance

Stance of monetary policy continues to be as set out in annual policy statement in April 2005. Bank rate, reverse repo rate and CRR remain unchanged.

Volatile crude oil prices, incomplete pass-through of oil prices domestically, upward trajectory of policy rate in the US, overhang of liquidity, high credit growth are among factors that could prompt a change in the stance of the policy

External Developments:

Yuan revaluation to be marginally positive on trade account, neutral on current account and indeterminate on capital flows, based on current indications

Capital flows could be potentially volatile on the global front in the backdrop of the revaluation of the Chinese currency

External risks have increased since April 2005. Oil prices continue to remain high and volatile and the upward trajectory of US policy rate has implications for capital inflows to emerging markets.

Domestic Developments:

Bank credit increased by 6.6 per cent up to July 8, compared with 5.0 per cent in the corresponding period last year

Non-food credit increased by 6.5 per cent (Rs 69,096 crore) compared with an increase of 4.3 per cent (Rs.34,272 crore)

Incremental non-food credit-deposit ratio higher at 66.8 per cent as against 54.7 per cent up to July 8 money supply (M3) increased by 5.4 per cent (Rs.1,21,399 crore) compared with 3.9 per cent (Rs. 77,514 crore) in the corresponding period of the previous year

Aggregate deposits rose by 6.1 per cent (Rs.1,03,460 crore) as compared with an increase of 4.2 per cent (Rs.62,621 crore) in the corresponding period of the previous year

Reserve money increased by 3.7 per cent (Rs17,932 crore) in the current financial year up to July 15, 2005 as against a decline of 1.6 per cent (Rs 7,059 crore) in the corresponding period of the previous year.

Annual inflation, as measured by variations in the consumer price index (CPI) for industrial workers, on a point-to-point basis, was 3.7 per cent in May 2005 against 2.8 per cent a year ago.

India's forex reserves, which were $141.5 billion as at end-March 2005, declined by $4.0 billion to $137.5 billion on July 22, 2005.