RBI would announce the monetary and credit policy on 31/Jul/07. What can we expect?
RBI would hold all rates steady
This is because inflation is under control - the inflation currently is around 4.27% as against 5.94% as of end of Mar/07. And the inflation is likely to remain around 5% because of the favourable base effect that would continue till second quarter of FY08. There are some pressures though - the main one being that of crude oil prices that have gone up significantly now (a round of fuel price hike in India cannot be ruled out - infact it is definitely expected).
There has also been a moderation in credit growth - the credit growth is lower at 25% from around 30%.
Also, any future hikes would attract larger capital inflows and leave the economy with a problem of plenty.
RBI would definitely focus on liquidity management, no CRR hike
There currently is excess liquidity in the system due to multiple factors - capital flows have remained quite strong prompting RBI intervention and there has been a surge in deposits accompanied by a contraction in credit in Q1. The capital flows would continue to remain strong and so RBI would prefer to keep the pace of appreciation at bay as a sharp pace of appreciation is not going to be good for sectors like exporters and IT. The rupee has appreciated by 7.5% against USD in Apr-Jun07.
RBI would have to absorb liquidity through MSS (market stabilisation scheme) and the MSS ceiling is likely to be revisited.
RBI would hold all rates steady
This is because inflation is under control - the inflation currently is around 4.27% as against 5.94% as of end of Mar/07. And the inflation is likely to remain around 5% because of the favourable base effect that would continue till second quarter of FY08. There are some pressures though - the main one being that of crude oil prices that have gone up significantly now (a round of fuel price hike in India cannot be ruled out - infact it is definitely expected).
There has also been a moderation in credit growth - the credit growth is lower at 25% from around 30%.
Also, any future hikes would attract larger capital inflows and leave the economy with a problem of plenty.
RBI would definitely focus on liquidity management, no CRR hike
There currently is excess liquidity in the system due to multiple factors - capital flows have remained quite strong prompting RBI intervention and there has been a surge in deposits accompanied by a contraction in credit in Q1. The capital flows would continue to remain strong and so RBI would prefer to keep the pace of appreciation at bay as a sharp pace of appreciation is not going to be good for sectors like exporters and IT. The rupee has appreciated by 7.5% against USD in Apr-Jun07.
RBI would have to absorb liquidity through MSS (market stabilisation scheme) and the MSS ceiling is likely to be revisited.
