India Monetary Policy Review: Q3 2007-08

RBI has presented its monetary policy for Q3 2007-08.  The full report is here and the summary is here.

In nutshell, RBI maintains its policy rates and there are no changes. The overall stance of monetary policy in the period ahead will broadly continue to be:

  • To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to continuation of the growth momentum and orderly conditions in financial markets.
  • To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.
  • To monitor the evolving heightened global uncertainties and domestic situation impinging on inflation expectations, financial stability and growth  momentum in order to respond swiftly with both conventional and unconventional measures, as appropriate.

I am glad RBI maintained its rates. There were huge pressures on RBI to cut rates but it stood its ground.

There were numerous arguments from various people arguing for a rate cut on account of slowdown ( is 8.5% growth slow), credit growth (again about 20% , is it slow?), IIP slowdown (about 9%  from Apr-Nov with capital goods index increasing at about 20% every year, again is it slow), low inflation (well oil prices have not been raised and good prices are expected to rise, so inflation is only going to rise).

I will read the statement and see if I can post something on the report.


In the Q3 2007-08 macroeconomic report, it is seen that despite rising deposits, banks have not been deploying it in credit but in G-secs and other financial assets. Hence RBI says in its mon policy that one of the aim would be:

  • To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

RBI also says:

In view of the prevailing liquidity conditions and the sustained profitability of banks as reflected in net interest margins, there is a need for banks to undertake institutional and procedural changes for enhancing credit delivery to sectors that are employment-intensive. 

This employment-intensive word just caught my eye and set me thinking. RBI has been emphasizing on the word earlier as well (see Midterm report 2007-08 and Annual report 2007-08.)

I think it is because of the NSS 2004-05 report which says that employment numbers have improved but the quality of employment hasn’t (Read my posts here and here). Infact much of the employment has actually been in agriculture and self-employment both having lower growth rates than services and industry. Hence, the need to allocate more credit to those sectors which are growing and are employment intensive as well.

This is one of the biggest problems in Indian economy- migrating the huge labor from low growth sectors to high growth ones.


One Response to “India Monetary Policy Review: Q3 2007-08”

  1. BeceUnave Says:

    I agreed with you

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