Status Quo On Key Rates, Banks Can Keep 10% IFR

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Mumbai, May 18: There is no change in the monetary policy stance in the Reserve Bank of India’s (RBI) annual policy statement. As expected, the RBI kept the Bank Rate and repo rate ‘stable’ at six per cent and 4.50 per cent, respectively.

RBI governor Yaga Venugopal Reddy was, however, concerned with the implications of changes in the monetary and external environment on their operations and urged bankers to make adequate provisions for unforeseen contingencies in their business plans.

The stance of the annual policy for 2004-05 remained the same — providing adequate liquidity to meet credit growth and support investment and export demand. The RBI maintained a status quo to pursue an interest rate environment that is conducive to maintaining momentum of growth, and macro-economic and price stability.

Said Corporation Bank chairman and managing director K Cherian Varghese: “With around Rs 75,000 crore liquidity in the system, no rise in interest rate is seen in the near term.”

Announcing the ‘annual policy statement’ for 2004-05, Dr Reddy cautioned bankers about the possible external shocks in a more competitive environment and exhorted bankers to build up higher percentage of investment fluctuation reserve (IFR) up to 10 per cent of their portfolio, depending on the size and composition of their portfolio. “The movement in interest rates during 2003-04 corroborates the view that banks should, in their interest, take steps to build up IFR in a smooth and phased manner for better risk management”, the RBI said.

“Keeping in mind the changes which are expected to develop on the domestic and international front in conclusion, it is apt, therefore, that the policy continues to maintain stable interest rate environment”, said Securities Trading Corporation of India managing director RV Joshi.

The government securities market reacted positively to the policy statement. Prices on select dated stocks prices rallied smartly on fresh buying interest. Prices at the medium to longer end rose by 20-50 paise. The benchmark