RBI could not have done better: CII

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Under the current circumstances, the RBI Governor could not have announced a more appropriate Monetary Policy, said the CII President, Mr R Seshasayee reacting to the Annual Policy Statement of the RBI announced earlier today.

With no upward increase in key rates, the RBI Governor has sent a clear indication that he would like to see the effects of the earlier rate hikes play out before taking any further measures in this area. Also it is an indication of the RBI's acknowledgement that growth cannot be traded off in the combat against inflation, said Mr Seshasayee. This has sent the right signals to industry and the market, added the CII President.

The CII President was particularly appreciative of the measures, which indicate that the RBI is keenly following the effect of Rupee appreciation on exports. The various measures announced in the Policy, which also indicate certain degree of liberal approach to outward flow of foreign currency are most welcome under the present conditions, since they would definitely have a sobering effect on the rapidly appreciating Rupee, said the CII President. 

CII strongly welcomes the RBI Governor's announcement that SMEs would be permitted to book forward contracts without underlying exposures or past records of exports and imports through authorized dealers with whom the SMEs have credit facilities, said Mr Seshasayee.

Commenting on the macro economic targets set by the central bank, the CII President said that CII's own GDP growth forecast resonates with the RBI's forecast of 8.5% GDP growth for 2007-08 as was announced by the Confederation a week back. In this context the increase in the target Money Supply to 17-17.5% is welcome, said Mr Seshasayee.

However, on the desired tolerance range of inflation being brought down to 4- 4.5%, the CII President expressed concern about the compatibility of this range with a high growth rate trajectory over the medium term, which India needs to aspire for. In the current fiscal a suitable base effect may mandate a lower threshold, but then on the base effect would be unfavourable therefore, the tolerance threshold may need upward revision, felt Mr Seshasayee. Besides, we need to move to a system by which a more disaggregated approach is adopted for inflation monitoring and management, added the CII President.

Looking at the huge requirement for budget housing for the vast number of people in the middle income segment, the RBI Governor's announcement of reducing risk weightage to 50% for individual housing loans of upto Rs 20 lakhs is very appropriate, said the CII Press Release.

Mr Seshasayee concluded by saying that CII takes note of the clear intent of the RBI to have India move to a regime of fuller capital account convertibility as new measures are announced towards a progressive shift in this direction.

 Sourced From: Confederation of Indian Industry