Business Standard

Rbi Confident Of 6.5% Real Gdp Growth

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R Srinivasan BSCAL

The Reserve Bank of India is confident that the economy will register a real gross domestic product (GDP) growth rate of 6.5 per cent in 1998-99.

The RBI will pursue the monetary policy objectives of maintaining price stability and ensuring adequate bank resources for lending, with a focus on improving credit delivery. However, the apex bank is concerned over the rise in the rate of inflation to around 8.5 per cent compared with 3.95 per cent a year ago.

The RBI central board of directors met here on Wednesday to review the monetary and credit policy measures initiated between May and September. The credit policy for the second half will be announced on October 30.

 

The RBI review felt the exchange rate will remain stable, in light of the anticipated current account deficit of less than 2 per cent of GDP, comfortable foreign exchange reserves position and continued confidence of international investors.

According to the RBI review, the current fiscal has been characterised by a pronounced increase in the aggregate deposits of banks, coupled with a decline in bank credit, which reflects slackness in industrial production and a shift in bank funds to capital market investments.

The RBI does not expect any undue pressure on long-term interest rates as a major part of the government's borrowing programme has been completed. It does, however, expect short-term rates to harden due to the fixed repo rate being kept at 8 per cent.

The RBI has noted that money supply in 1998-99 has remained above the projected level of 15-15.5 per cent, indicating a comfortable liquidity position, due to to a sharp growth in the deposits of scheduled commercial banks.

Money supply (M3) increased Rs 61,146 crore, or 7 per cent, during the current fiscal up to September 11, compared with an increase of Rs 40,432 crore (5.8 per cent) in the corresponding period of previous year.

According to the RBI, the aggregate deposits of all scheduled commercial banks increased by 8.2 per cent, or Rs 42,423 crore, between April-September 11, compared with an increase of 6.1 per cent in the corresponding period of 1997. Part of the increase was due to the State bank of India's Resurgent India Bond (RIB) scheme, which mobilised Rs 17,945 crore.

The year-on-year growth rate of deposits was 22.1 per cent, as on September 11 compared with a growth of 17.9 per cent in the previous year. Bank credit of scheduled commercial banks declined by 0.1 per cent up to September 11 as against a decline of 0.7 per cent in the previous year.

The RBI hopes that the agricultural sector will show significant growth this year. However, the industrial growth will have to be assessed against the backdrop of a turnaround in the capital goods and consumer goods sectors and subdued growth in exports.

Net RBI credit to the Centre has increased significantly compared with a decline in the previous year. The comfortable liquidity enabled the completion of major portion of the borrowings of Central and state governments.

Reserve money increased by Rs 9,739 crore (4.3 per cent) up to September 11, against the increase of Rs 3,231 crore (1.6 per cent) during the comparable period of the previous year.

The total flow of funds from scheduled commercial banks to the commercial sector increased to Rs 3,446 crore, or 1 per cent, compared with a growth rate of Rs 2,921 crore (1 per cent) in the previous year.

Export credit as a proportion of the net bank credit declined from 10.7 per cent on March 27 to 10.2 per cent on September 11, 1.8 percentage points lower than the target of 12 per cent.

Currency with the public increased by 5.3 per cent compared with 6 per cent in the comparable period last year. Analysis of source-wise data indicates that bank credit to the government sector contributed to the significant increase of M3.

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First Published: Oct 16 1998 | 12:00 AM IST

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