Unchanged rates may not enthuse market: Icra

 Even though this move may not enthuse the market, it might have been warranted by the current liquidity situation.

 Further, with growth trends in the rest of the world moving up, the easing cycle for monetary policy in the developed financial markets may have ended.

 This provides little reason for India to signal any further downward movement in the interest rates.

 Moreover, by keeping the rates unchanged, the RBI may have implicitly acknowledged that the current term structure of interest rates reveals a flattening of the yield curve.

 For instance, the current spread between a short term and a long term paper (10-year) is around 50 basis points.

 To that extent, the possibility of a decline in interest rates from the current levels may not come about and hence the bank rate and the CRR cut may not have any operational significance.

 Meanwhile, even though the upward revision in gross domestic product growth for 2003-04 by the RBI appears reasonable, the projection of a benign inflation rate by the bank clearly emphasises that growth in the financial year 2004 will be primarily driven by the agricultural sector.

 Also, if the inflation stays within the projected 4-4.5 per cent band, the higher GDP growth in fiscal 2004 may be a statistical artifact as it would have come over a lower base in fiscal 2003 and 2002.

 Against this background, the monetary and credit policy continues to target M3 growth at 14 per cent, consistent with a revised inflation target of 4.0-4.5 percent as against the earlier level of 5-5.5 per cent and a revised real GDP growth of 6.5-7.0 per cent as compared to the earlier level of 6 per cent.

 The RBI is also optimistic on being able to achieve the targeted resource flow of 15-15.5 per cent to the commercial sector.