Forex

Who are the priority?

“You go to the market, the price of rice has risen, dal has become costly, so shouldn't the price of money rise? There has to be a balance. When the prices of commodities increase, and you wish the price of commodities wasn't this high, do you want the price of money not to increase? So many people have rice, how many people take loans? Who are the priority? Those who eat rice or those who take loans?”

Will the growth slowdown?

This is a very very marginal moderation and less than the moderation in the rest of the world. We will continue to be the second fastest growing economy in the world. Currently, there is an exaggerated bearishness on various aspects. This is as dangerous as exaggerated bullishness, which in some ways
is the reason for what we are today.


Won't they laugh all the way to bank anymore?

Three-four years ago, banks had said they would be in trouble as interest rates rise. They said profitability would be hit. But profitability has increased and is increasing. Stock market variations may happen. But as far as the sector is concerned, you cannot say profitability of banks has not increased in the past four years. Banks, by and large, are strong and healthy; they have been helping growth.

Will he be around the next time?

The governor of RBI will present the next policy review.

Basics

Repo rate: This is the rate at which the RBI lends to banks. Raised by 50 basis points to 9 per cent, at a 7-year high now.

Cash reserve ratio: The CRR is the percentage of banks’ deposits they must keep as cash with the RBI. To rise by 25 basis points to 9 per cent, effective August 30, at an 8-year high.

Reverse repo rate: This is the rate at which the central bank absorbs funds from the market. It impacts government bond yields and short-term bank deposits. Unchanged at 6 per cent.

Bank rate: Banks use this rate to price their long-term loans to individuals and companies. Unchanged at 6 per cent.

Growth forecast: The RBI expects 2008-09 economic growth of around 8 per cent, down from 8-8.5 per cent.

Inflation aim: To bring down inflation close to 7 per cent by March 2009, up from 5-5.5 per cent.

Money supply: Aims for around 17 per cent money supply growth in 2008/09.

Credit growth: Seen at around 20 per cent in 2008/09.

Next policy review: Second-quarter review on October 24.

Interest is not the only factor determining credit growth (Chanda Kochhar ICICI Bank)

The RBI has accorded top priority to managing inflation and inflationary expectations. It is heartening to note that the central bank has maintained a projection of 8 per cent GDP growth for FY09. The objectives of achieving 8 per cent GDP growth and bringing down inflation at 7 per cent by fiscal-end will entail absorption of pain in the near term. Markets tend to react conservatively when faced with such tightening policies from the Central bank. So, it is not entirely surprising to find the interest rate structure of the banking system going through a dynamic review and adjusting to the evolving market realities. Interest rates are not the only factor determining credit growth rates; the growth momentum of the economy also impacts credit demand. In the context of RBI’s projection of GDP growth rate, it is reasonable to assume that investment growth will continue and credit growth will be supported at 15-20 per cent level.