Tuesday, November 15, 2011

RBI Adjusts Stance to Reflect Deepening of the Global crisis...

The RBI formulated its second quarter review of the Annual Monetary Policy for the year 2011-12 against a backdrop of decelerating domestic demand and growth, led by global economic sentiments. A slew of regulatory and developmental policy measures have been announced; these include new products to widen and deepen the financial markets and measures to increase financial inclusion and strengthen the banking system. The most important measure however, was the deregulation of the Savings Bank Deposit Interest Rate, which so far remained the so called last bastion of interest rate regulation in India. Though this could lead to both intra- and inter-bank deposit migration in the short-term, it is expected that the move will lead to efficiency in banks’ credit-deposit management and would benefit a large number of small savers in the country.

As inflation expectations are likely to be controlled due to previous policy measures as well as the slowdown in both global and domestic growth and demand, RBI has now shifted its stance from hawkish to neutral. This has provided significant breathing space for domestic financial markets and corporates who have been facing shrinking profits due to shrinking global demand, rising borrowing and input costs as well as fluctuations in foreign exchange rates. India’s October exports slackened to about 11 per cent from a peak of 82 per cent growth registered in July, widening the country's trade deficit to a four-year high. India’s industrial output growth for September has also decelerated, for the third consecutive month, to a mere 1.9 per cent the lowest reading in two years. Going forward, the developments—related to the sovereign debt crises across the globe, in the global financial markets and the actual trajectory of both global and domestic commodity prices—would determine necessary changes in the policy stance. The highlights of the Second Quarter Review of Monetary Policy 2011-12 is presented here :E-UpDates-November2011

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