Reserve Bank of India Governor Yaga Venugopal Reddy has raised the cash reserve ratio, or the proportion of deposits commercial lenders need to place with the central bank, five times since December 2006. He has lifted the central bank's key policy rates nine times since October 2004 to check inflation.
India this week is holding the biggest sale of debt since January to reduce the supply of money in the financial system and temper prices. The central bank plans to sell 230 billion rupees ($5.8 billion) of bonds and bills this week, including 90 billion rupees of securities to drain excess money from the banking system.
The central bank will make an ``apt'' response in its April 29 policy announcement to tackle inflation, Deputy Governor Rakesh Mohan said on April 9. The authority kept the key repurchase rate unchanged at 7.75 percent at the last monetary policy announcement on Jan. 29.
Oil touched an unprecedented $112.21 a barrel on April 9 in New York. Palm oil, used mostly for cooking, reached a record 4,486 ringgit ($1,423) a metric ton on March 4, and wheat in Chicago has more than doubled in the past year, reaching an all- time high of $13.495 a bushel on Feb. 27.
The government today scrapped export incentives for rice, steel and cement to boost local supplies and tame inflation, which is choking economic growth and driving up costs. Trade Minister Kamal Nath, who announced the withdrawal of export inducements in New Delhi, said the central bank must also act to contain price gains. Bonds declined for a second day on speculation the Reserve Bank of India may increase borrowing costs as soon as this month.
India's government this month scrapped import duty on crude edible oil and banned the export of rice and pulses to boost supplies and drive down prices. The government also elicited assurances from steelmakers on April 2 to restrict price increases to help cool inflation.
Foreign Exchange Reserves Rise Again
India's foreign exchange reserves rose $2.7 billion to touch $311.9 billion during the week ended April 4, partly on account of RBI intervention to mop up excess dollar inflow. the Reserve Bank of India (RBI) said in its weekly statistical supplement (WSS), in Mumbai. While the value of gold in reserves rose $481 million, the value of SDR and reserves with the IMF dipped $1 million and $15 million respectively.
The change in foreign-currency assets is partly because of changes in the value of the dollar against the euro, yen and other currencies during the period, the central bank said. The country's foreign-exchange reserves rose Rs 3, 81,923 crore over the past year, the bank said. The RBI bought $3.88 billion of foreign currency in February, its 16th straight month of purchases. The central bank's currency purchases in February fell 72% from a record $13.6 billion in the previous month. The RBI bought a total $75.4 billion in the first 11 months of the fiscal year ended March 31, boosting foreign- exchange reserves to a record $309.2 billion as of March 28.
Regarding the updated money M3 supply figures, the total stock of money in the system amounted to Rs 39,98,887 crore, up Rs 1,21,615 crore - or 2.07% -over the previous fortnight’s figures. While the currency with the public dipped Rs 2,017 crore, demand deposits and term deposits rose Rs 77,288 crore and Rs 45,919 crore respectively.
On another front revised loan figures show that the slowdown in credit offtake has been steeper that the earlier indicated. During FY08 credit rose 21.6% against 28.1% in the previous year.
According to the figures released in the weekly statistical supplement (WSS), total bank credit amounted to Rs 23,48,493 crore as on March 28, up Rs 75,891 crore over the previous fortnight’s. While food credit rose Rs 894 crore, non-food credit rose Rs 74,997 crore during the fortnight.
For the year 2007-08, credit rose 21.6% as compared to 28.1% in the previous year. Aggregate deposits mobilised by commercial banks amounted to Rs 31,92,141 crore as on March 28, up Rs 1,16,917 crore over the previous fortnight’s. While demand deposits rose Rs 74,010 crore, term deposits rose Rs 42,907 crore. Annual deposit growth for the year works out to lower at 22.1% as a compared to 23.8% in the previous year.
At the same time India's rupee traded near the highest this month on speculation the central bank will allow gains in the currency to keep inflation from accelerating.
The rupee was little changed at 39.955 a dollar at 5 p.m. in Mumbai, from 39.945 yesterday.