With the aggregate deposit of scheduled commercial banks showing steady rise, surpassing the expectations and the overall growth in the money supply, most challenging aspect at present is liquidity management. With the rising global uncertainty due to US sub prime crisis coupled with fear of recession, maintaining financial stability and ensuring continuation of credit momentum are some of the challenges the RBI has tried to address to in this policy review.
With no change in its monetary stance, arbitrage opportunities would make the liquidity management a challenge and for appropriate timely action the RBI has decided to continue its other policy measures of flexibility to conduct over night or long term repo in order to ensure soundness in taking required measures for ensuring stability, continuation of credit momentum and keeping an eye on the rupee appreciation.
With continuation of growth in money supply and the aggregate deposit of scheduled commercial banks, there is a possibility of southward momentum of interest rate in the near future in order to improve the non-food credit which is at present showing signs of deceleration.
Through review of the monetary policy the RBI continues to ensure growth story of India by making adequate liquidity available in the system and ensuring that price stability and inflationary expectations are kept well within the over all expectations of inflation of 5% during 2007-08. Thus with no change uncertainties in the domestic market are being controlled through conducive environment by not only ensuring credit momentum but also continuation of stability so as to respond swiftly to any change in the prevailing uncertain conditions at the international level.
The author is MD & CEO, Bank of Maharashtra