- It is wrong to think that containing inflation will hurt the growth. In fact, high inflation dampens the gowth. The steps (to contain inflation) are meant to maintain the growth mommemtum (in the Indian economy).
- The central bank used three sets of measures to curb inflationary pressures and target lending to overheated sectors - monetary (through the repo rate hike), prudential (through increase in provisioning for exposures to the sensitive sectors) and management of capital account (by seeeking to curb flow of foreign exchange by way of investments by NRIs in bank deposits). We look at multiple indicators not just one, which include the accompnaying conditions alongwith inflation that affect financial balances. We are prepared to use multiple instruments of monetary policy.
- There is general atmosphere of monetary tightening and Asian economies managing capital flows are to be noted.
- There is a re-emphasis on credit quality. We prefer exposure to real estate, credit card receivables, consumer loans and capital market be restrained. We don't want the banking system to develop vulnerabilities. There is no increase in provisioning for residential housing loans as it is important at this stage of development and demographics of the country.
- In general, we notice supply conditions are better, and therefore we find GDP growth revised upwards to 8.5-9% from 8-8.5% in October.
- Demand pressures have intensified. Policy priority therefore is to try and bring the inflation closer to the range of 5-5.5 per cent and to contain and moderate inflationary expectations. Increase in primary articles prices has a direct impact on inflationary perceptions.
