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Sustained growth expected in money supply

Sustained growth expected in money supply
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First Published: Tue, Feb 27 2007. 03 10 PM IST
Updated: Tue, Feb 27 2007. 03 10 PM IST
Reuters
NEW DELHI: Money supply and credit growth are likely to slow in the coming years from their very strong current rates, but may continue to outpace economic growth, a government report said on 27 February.
In its annual economic survey, the government said credit and money supply levels were low by international standards.
“The rapid rise in credit growth in recent years has reflected and also helped the growth momentum of the economy,” the report said.
“But it is unlikely that they will grow as fast as they have in recent past,” it added.
The survey, a snapshot of India’s economic performance in 2006-07 said money supply and credit growth in the current fiscal year ending 31 March were considerably higher than the central bank’s projection.
Money supply grew at an annualised 21.3% in the two weeks to 1 February, higher than a central bank forecast of 15% for the fiscal year.
Bank loans have grown at an annual rate of about 30%, higher than the central bank’s target of 20%.
The report also said reducing the cash reserve ratio (CRR), or the ratio of cash that banks hold with the central bank as a percentage of total deposits, was a medium-term objective.
Earlier this month, the central bank announced an increase in CRR by 50 basis points in two stages to 6.0%, following a similar increase announced in December.
The report also said monetary and credit policies needed to help maintain the country’s international competitiveness in view of buoyant capital flows.
Currency traders have said the central bank has been intervening to cap the rupee since November and appears to have stepped up efforts in February.
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First Published: Tue, Feb 27 2007. 03 10 PM IST
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