Key comments by central bank governor on policy review

October 24th, 2008 - 6:03 pm ICT by IANS  

Mumbai, Oct 24 (IANS) Following are some key comments by Reserve Bank of India (RBI) Governor D. Subbarao, who conducted the mid-term review of the country’s monetary policy with chief executives of commercial banks here Friday:”This mid-term review is set in the context of several complex and compelling policy challenges. The global financial system is in a crisis of unprecedented dimensions.”

“The global financial situation, described as the worst since the Great Depression, continues to be uncertain and unsettled. There are continuing concerns about the nature and depth of the crisis, the manner of and the time frame for its resolution and the response to the policy measures announced so far.”

“India’s financial sector is stable and healthy. All indicators of financial strength such as capital adequacy, ratios of non-performing assets and return on assets for our commercial banks… are robust. Indian banks have been affected only peripherally as they do not have direct financial exposure to the US sub-prime assets.”

“In the wake of the stress on our financial markets as a result of the global financial crisis, the immediate challenge for the Reserve Bank was to infuse confidence by augmenting both domestic and foreign exchange liquidity.”

“The total liquidity support through reductions in the cash reserve ratio, the temporary accommodation under the statutory liquidity ratio and the first instalment of the agricultural debt waiver and debt relief scheme was of the order of Rs.185,000 crore (Rs.1,850 billion or around $40 billion).”

“The first quarter review of July 2008 placed the projection of real gross domestic product (GDP) growth in 2008-09 at around 8 percent for policy purposes. Since then, there have been significant global and domestic developments… Taking these developments and prospects into account, the Reserve Bank has revised the projection of overall real GDP growth for 2008-09 to a range of 7.5-8 percent.”

“Keeping in view the supply management measures taken by the government and the lagged demand response to the monetary policy measures taken by the Reserve Bank over the last one year, the earlier projection of inflation of 7 percent by end-March 2009 appears to be valid. It has, therefore, been decided to maintain this estimate for policy purposes.”

“India’s balance of payments continues to reflect strength and resilience in a highly unsettled international environment. Resumption in the vigour of export growth in the second quarter of 2008-09 is a comforting factor.”

“The significant softening of international crude oil prices in recent weeks can be expected to moderate the trade deficit in the second half of the current fiscal year. However, the volatility in international crude oil prices warrants continues monitoring.”

“Widening gaps in the physical infrastructure, markedly in power but elsewhere too except in coal production, could impose a binding constraint on growth. Capacity addition in the power sector has remained far short of tenth Plan targets, worsening the persisting large shortage in the country.”

“Signs of deterioration in the fiscal situation appear to be adding to aggregate demand pressures in the economy. The revenue deficit of the central government has exceeded 177 percent of the budget estimates during April-August 2008 and overshooting is also observed in the other deficit indicators.”

“The Reserve Bank reiterates that it is confident of managing the situation and minimising the adverse impact of the global crisis on the Indian economy. Our financial system is strong and healthy, and our economic fundamentals are strong. Once the global situation is managed and calm and confidence are restored, we will return to our higher growth trajectory.

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