Credit growth has reached a level of 30% in the last two years. There are serious concerns for higher CD ratio. Major problems are credit quality, financial market conditions etc. The monetary policy for 200607 has tried to address concerns such as inflation management, slowpaced growth and level of currency supply.
The
broad objectives of monetary policy in India relate
to maintenance of a reasonable degree of price stability
and expand credit adequately to foster faster growth.
But the relative emphasis on these objectives has naturally
differed in various phases of India's development. In
the ultimate analysis, monetary policy has to be evaluated
in an integrated framework in terms of the interrelationship
among money, credit, output and prices.
The
effectiveness of the transmission mechanism is hampered
by several behavioral and institutional relationships.
Consequently, there has been a resurgence of interest
in the monetary and credit policy initiatives in influencing
the volume and composition of money and credit in the
economy. The dynamics of monetary management in an increasingly
open economy attempt to temper market expectations through
adroit handling of design, implementation and coordination
of major monetary policy instruments in conformity with
the rapidly unfolding financial landscape. The macroeconomic
objectives of RBI, i.e., the "pursuit of price
stability and ensuring the availability of adequate
credit to the productive sectors of the economy "
(RBI, 1998) is attempted through conduct of monetary
policy, including exchange rate policy, and acting as
the lender of last resort. Despite the menu of possible
variations on the basic approach, monetary policy is
essentially aimed at strengthening the financial system,
streamlining the credit delivery mechanism and institutional
improvements to support growth consistent with stability
in a medium-term perspective. |
