Plain vanilla pronouncement on the cards

MONETARY POLICY PREVIEW

The slack season monetary policy announcement, due on Tuesday, will be one with a difference. The policy will, perhaps for the first time, be a document independently brought out by the Reserve Bank of India (RBI) "" with no significant inputs from the North Block.

The central bank governor Y V Reddy rushed to New Delhi on Saturday to talk to the finance ministry.

These pre-credit policy meetings are customary as it helps the RBI get a perspective on the government's fiscal policy, in order to ensure alignment with the monetary stance.

This time round, however, with only a caretaker government at the Centre, it is likely that Reddy's trip to the capital may not have been fruitful. Inside sources said Reddy may not get an audience with members of the new coalition either.

So the document has been prepared without the foreknowledge of the economic policy position of the common minimum programme that is being thrashed out by the Congress and the Left Front.

This situation is expected to have a direct impact on the central bank's policy stance on foreign direct investment (FDI). As it is, the left parties are not too gung-ho on foreign capital entering what they perceive as 'sensitive' areas, including banking. This clearly could result in a setback for foreign banks and FDI coming into the financial system.

The new government has also talked of doing away with the divestment ministry. This too will have major repercussions on the RBI's ability to carry forth the idea of reducing government holding in public sector banks.

Nor is Mint Road likely to make any policy announcements in regard to increasing voting rights in excess of 10 per cent in domestic banks and foreign ownership of Indian banks.

At best it could state that it is examining the situation, even as RBI's draft report "" now lying with the new government "" shows a status quo on its preference in the voting rights issue.

The foreign exchange liberalisation measures triggered by the National Democratic Alliance led by exiting prime minister Atal Bihari Vajpayee might see a setback. The forex reserves last week crossed the $118 billion mark.

Preparing the policy document while in the dark is not exactly a comfortable situation due to which no major announcements are expected on Tuesday. Bankers feel it will be a plain vanilla pronouncement.