The Hindu : RBI cuts Bank Rate, CRR

Online edition of India's National Newspaper
Wednesday, Apr 30, 2003

Front Page

Front Page

RBI cuts Bank Rate, CRR

By Oommen A. Ninan

The Governor of the Reserve Bank of India, Bimal Jalan, before announcing the annual monetary policy, in Mumbai on Tuesday. — Reuters

MUMBAI April 29. Indicating a strong bias towards a soft interest rate regime, the Reserve Bank today cut the Bank Rate — the rate at which RBI provides funds to commercial banks — by 25 basis points reducing it to six per cent with effect from the close of business today. The Bank Rate is also an indicative rate for the banking system and the banks are likely to resort to further cut in the lending and deposit rates.

The RBI also cut the Cash Reserve Ratio (CRR) — the amount of cash kept by the individual banks with the RBI — by another 25 basis points to 4.5 per cent effective June 14, 2003, which would augment Rs. 3000 crores to the banking system.

The Bank Rate has been reduced from 11 per cent to six per cent, i.e., by 500 basis points in the last five years. ``This is the sharpest reduction in the Bank Rate since Independence,'' said Bimal Jalan, RBI Governor, while announcing the Monetary and Credit policy for the year 2003-04 here, today. However, he said that ``unless the domestic and international circumstances change, the policy bias in regard to the Bank Rate is to keep it stable until the mid-term review of October 2003.''

``There were many uncertainties on the international front and domestically we had a bad drought last year. Against this backdrop the Monetary and Credit Policy was formulated,'' Dr. Jalan said. However, he said, ``conditions in the country are now quite favourable for growth and the central bank will continue with the present stance of preference for a soft and flexible interest rate environment within the framework of macro economic stability.''

Giving an indication of the future, Dr. Jalan said that ``in view of several structural constraints, it is likely that the present nominal and real interest rates are now relatively low and may not have significant potential for future sizeable downward movement in India.''

As regards projection for Gross Domestic Product (GDP), he said the overall growth rate for the year 2003-04 largely hinged on a sustained upturn in the industrial and services sectors and recovery in agriculture output. ``Assuming a satisfactory spatial distribution of the monsoon and if rainfall is around 96 per cent of the long-term average, the growth rate of GDP in 2003-04 could be placed at six per cent.''

Mr. Jalan said the increase in inflation in the last quarter of 2002-03 was dominated by certain commodities such as edible oils, oil cakes and mineral oils. Based on the present assessment of relevant factors, he Governor indicated that the inflation rate in 2003-04 might be placed in the range of 5 to 5.5 per cent compared to last year's inflation rate of 6.2 per cent.

While the prices of edible oils increased sharply partly because of drought, the domestic mineral oil prices increased substantially in the wake of the sharp rise in international oil prices.

``The prices of these items are now expected to decline during the course of the year,'' Dr. Jalan said.

Printer friendly page
Send this article to Friends by E-Mail

Front Page

Stories in this Section

PM non-committal on Jamali's invitation

Let's begin with sports: Jamali

RBI cuts Bank Rate, CRR

13 Iraqi protesters shot dead

13 militants killed in Doda encounter

Greenfield airports to get `independent status'

Pilots Guild derecognised

Prithvi test-fired

Beig resigns as PDP chief

Copter crash

Commission for children