Following are the highlights of third quarterly review of Monetary Policy released by the Reserve Bank of India on Wednesday:
- Overnight lending rate (repo) up by 0.25 pc to 7.5 pc
- Consequently, liquidity to tighten to tame inflation
- Other rates kept unchanged
- GDP forecast raised to 8.5-9 pc for 2006-07 from 8 pc
- Inflation to be brought down close to 5-5.5 pc
- To pursue goal of ceiling on inflation at 5 pc
- Currently, inflation at 5.95 pc
- Banks have to keep two paise for every Rupee given to real estate sector, capital market, personal loans (excluding housing), against credit cards and to NBFCs
- Consequently, rates for these loans expected to rise
- Concerns over international crude prices
- Liquidity management to receive priority in the remaining part of year
- Impact of monetary policy expected to be stronger than before as a result of tightening of liquidity
- RBI to use all policy instruments, including CRR, to ensure appropriate changes in liquidity for evolving situation
- RBI to ensure that legitimate requirements of liquidity are met
- High growth, firming up of inflation, coupled with escalating asset prices, tightening infrastructural bottlenecks complicated monetary policy conduct
- Concerns relating to persistently high credit growth and possible decline in credit quality
- Risk weight increased to 125 per cent for banks' exposure to NBFCs
- Banks restrained from granting fresh loans over Rs 20 lakh against rupee and foreign currency deposits of non-residents
- Interest rate ceiling on non-residents deposits reduced
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