Satisfying Policy With Futuristic Overtones

Updated: Oct 30 2002, 05:30am hrs
The Reserve Bank of India (RBI) governor, Dr Bimal Jalan has been changing the nature and the role of monetary policy ever since he took over this post.

His intent to make the policy a long-term, forward looking one was once again made clear by the announcement of various working groups, the findings of which, can have long term implications on the financial system of the country and is a very positive and encouraging move.

The policy as a whole met the market expectations and was not much of a surprise. A few things such as progress on rupee derivatives credit was expected but did not come through. We expect such announcements will come as and when the time is ripe.

The 25 basis points cut in cash reserve ratio (CRR) was not expected and was the biggest surprise element.

Nonetheless, it is in line with the stated policy of getting the CRR down to the 3 per cent statutory limit.

But the cut in bank rate was expected and is a welcome development. This cut also reconfirmed the softer interest rate bias.

We expected a fillip on the infrastructure and the project financing side which also did not come.

Since the credit policy is not the only forum where such measures are announced, we are expecting impetus on this front from the RBI in the near future.

The move to raise minimum daily maintenance of CRR of banks to 80 per cent of the required amounts on all days will be a tough act for banks and will put pressure on them.

However it is expected to play a significant role in reducing the volatility of the overnight call money rate.

It was also very encouraging to see that our exports are performing well and the inflation is low, the foreign exchange (forex) reserves remain at healthy levels and the governor also sought to put to rest the debate on the cost of holding such high forex reserves by explaining that he was not borrowing but giving rupees instead of dollars hence net-net there is no increase in total reserves.

Overall it was a satisfying policy with a strong futuristic overtones.

Jaspal Bindraceo, India Region, StanChart