Soft Rate Regime To Continue, Says RBI

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Mumbai, Aug 27: : The Reserve Bank of India (RBI) expects soft and flexible interest rate regime to continue in 2003-04, consistent with the monetary policy stance.

The RBI on Tuesday said in annual report for 2002-03 that capital inflows, release of resources through a cut in the cash reserve ratio in June ’03, lower order of food credit growth and monetary and liquidity conditions would facilitate a soft and flexible interest rate regime.

This is expected notwithstanding the projected expansion of non-food credit and the size of borrowings of the government sector. RBI said the monetary conditions in ’03-04 are expected to be dominated by external capital flows. During ’03-04, up to August 8, the net foreign assets in banking sector rose by Rs 32,997 crore. The demand for non-food credit is likely to be maintained on the rising trajectory which began in early ’02, given the positive investment climate and the anticipation of a recovery in agriculture activity.

The RBI expects the inflation to be in the range of 5.0-5.5 per cent as projected in the monetary and credit policy for 2003-04 based on the evolving international environment, the movement of key international prices and the underlying monetary conditions in the country.

More information on the progress and spread of rainfall needs to be juxtaposed with the July forecasts of a normal monsoon (98 per cent of the long period average) in the approaching season before a short-term prognosis of the effects on prices of primary articles can be made. Accordingly, prices of manufactures, which account for two-thirds of inflation in terms of wholesale price index, hold the key to the short-term inflation outcome, the report adds.