MUMBAI, April 12: The Reserve Bank of India has decided to go ahead with its monetary policy for the first half of 1998-99 without waiting for the Union budget. The central bank is likely to announce the policy in the last week of April or the first week of May. In 1997, the monetary policy for the first half of the year was announced on April 15. In the previous year, it was announced even earlier on April 3. According to sources, since budget is unlikely to be presented before the last week of May, the RBI is planning to go ahead with its credit policy announcement before the budget."There is unanimity between the RBI and the finance ministry on the issue. The RBI has its autonomy and the ministry will not influence its decisions about the timing of the credit policy," sources said. The announcement of a monetary policy before the Union budget is rare, though not unusual. At least twice in the recent past -- in 1991 and 1996 -- the credit policy was announced before the budget. On the first occasion,finance minister Manmohan Singh presented a vote-on-account as the budget was delayed. P Chidambaram presented his first budget in June in 1996.
According to sources, the RBI is likely to focus only on structural issues in the credit policy while it will keep on tinkering with monetary tools like the CRR and signalling devices like the bank rate to respond to changing situations. Ever since Jalan has taken over as RBI governor, there has been a distinct shift in the central bank's policy in regard to liquidity and interest rate management. The apex bank has been using CRR and bank rate as tools more frequently than ever. "It will continue to do so while the (formal) credit policy will be used to fix annual targets and address structural issues like reforms in the treasury bills market and allowing banks to fund mergers and acquisitions," sources said.
Stability on the external front will be the main plank of the monetary policy for the first half of 1998-99. This is in conformity with the newgovernment's commitment to maintain the stability of the Indian currency.Insiders say the integration of forex and money markets is less of a priority with Jalan than it was under Rangarajan. The central bank feels that ensuring stability on the forex front might mean having to build walls between forex and money markets -- something which the Rangarajan era tried to raze down. "The primary objective of the policy will be to stem volatility in the forex market at any cost as India cannot afford to experience the fate of Thailand or Indonesia at this point of time," sources said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
