Kudos in line on inflation management

May 12, 2008	(Be the first to rate this story!)  Loading ...
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The RBI’s Annual Credit Policy has come and gone and the markets and the economy are reacting to the initiatives of the RBI. It is obvious that the Governor/RBI has been proved correct in his judgment of the inflationary potential in the economy and his measures to raise the CRR before the credit policy were, indeed, well-timed. Hats off to him! I propose to devote this piece to an analysis of the document on macroeconomic and monetary developments for 2007-08 issued by the RBI just before the announcement of the Annual Monetary Policy statement for 2008-09.

The centre piece of the discussion is obviously on various macroeconomic aggregates, including, in particular, the growth of credit and money supply. But there are some details that bear detailed scrutiny. The total growth of bank credit as on January 16, 2007 was 30.1 per cent, while that in February 2008 was 22 per cent. The decrease in credit has not led to a decrease in inflationary potential. In fact, the latter period saw a higher increase in price inflation.

Turning to details of distribution of credit, I find that the continued emphasis of the RBI for reducing real-estate loans has had some impact. Whereas in the previous 12 months’ period, the rate of growth for credit for real-estate was 79 per cent, it has been only at 26.7 per cent in the latest period. Non-Banking Finance Companies have, however, attained a general rate of growth of 48 per cent compared to 29 per cent in the last year.

The loans against consumer durables have, however, shown a sharp decrease from 27.4 per cent to 5.0 per cent. Loans for this sector have a crucial role in promoting manufacturing sector’s growth. The real-estate loans have also shown a sharp decrease in the rate of growth from 79 per cent to 26.7 per cent. But real-estate loans are the basis of housing investment, as also of new initiatives, such as special economic zones (SEZ) projects.

News Published Under:   Real Estate India, Special Economic Zones |

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