HIGHLIGHTS OF THE FIRST QUARTER REVIEW OF MONETARY POLICY 2009-10

PROJECTIONS
1. GDP: Growth projection for GDP for 2009-10 on current assessment is placed at 6.0% with an upward bias.
2. WPI inflation: Keeping in view the global trend in commodity prices and the domestic demand-supply balance, WPI inflation for end-March 2010 is projected at around 5.0 per cent. This is higher than the projection of 4.0 per cent made in the Annual Policy Statement of April 2009.
3. Monetary projection: For policy purposes, money supply (M3) growth for 2009-10 is placed at 18.0 per cent, up from 17.0 per cent projected in the Annual Policy Statement. Consistent with this, aggregate deposits of scheduled commercial banks are projected to grow by 19.0 per cent. The growth in adjusted nonfood credit, including investment in bonds/debentures/shares of public sector undertakings and private corporate sector and CPs, has been retained at 20.0 per cent as in the Annual Policy Statement.

POLICY STANCE
• Manage liquidity actively so that the credit demand of the Government is met while ensuring the flow of credit to the private sector at viable rates.
• Keep a vigil on the trends and signals of inflation, and be prepared to respond quickly and effectively through policy adjustments.
• Maintain a monetary and interest rate regime consistent with price stability and financial stability supportive of returning the economy to the high growth path.

It is worth reiterating that the Reserve Bank will maintain an accommodative monetary stance until there are definite and robust signs of recovery. This accommodative monetary stance is, however, not the steady state stance. On the way forward, the Reserve Bank will have to reverse the expansionary measures to anchor inflation expectations and subdue inflationary pressures while preserving the growth momentum. The exit strategy will be modulated in accordance with the evolving macroeconomic developments.

MONETARY MEASURES: UNCHANGED
• Bank Rate: retained unchanged at 6.0 per cent.
• Repo Rate: retained unchanged at 4.75 per cent under the Liquidity Adjustment Facility (LAF)
• Reverse Repo Rate: retained unchanged at 3.25 per cent under the LAF
• Cash Reserve Ratio: CRR of scheduled banks has been retained unchanged at 5.0 per cent of net demand and time liabilities (NDTL).