Highlights of FY11 Annual Policy Statement

* Hikes reverse repo, repo rate, CRR by 25bps each
* Reverse repo, repo rate hikes with immediate effect
* CRR hike effective from Apr 24
* CRR hike to impound 125 bln rupees from banks
* FY11 GDP growth projection at 8.0% with upside bias
* March end inflation projection at 5.5%
* FY11 banks' credit growth projection at 20.0%
* FY11 banks' deposit growth projection at 18.0%
* FY11 money supply growth projection at 17.0%
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STANCE

* Hike in policy rates, CRR to help contain inflation
* Hike in policy rates, CRR to anchor inflationary expectations
* Measures to sustain recovery process
* Govt borrow needs, private credit demand will be met
* Hikes to align policy tools with evolving state of econ
* To closely monitor macro events, prices; take warranted steps
* Econ firmly on recovery path, industrial growth broad based
* India economy resilient, recovery consolidating
* FY11 econ growth to be higher, more broad-based vs FY10
* Lower policy rates can complicate inflation outlook
* Lower policy rates also impair inflationary expectations
* Despite 25bps hike in rates, real policy rates still negative
* Need to
normalise policy rates in calibrated manner
* Inflationary pressures "accentuated" in recent period
* Inflation getting increasingly generalised
* Capacity constraints to re-emerge as econ growth rises
* Must ensure demand-side inflation does not become entrenched
* FY11 fresh govt bond issuances 36.3% higher vs FY10
* FY11 fresh govt bond issuances "a dilemma"
* Policy considerations demands liquidity be curbed
* Govt borrow needs supportive liquidity conditions
* Need to absorb liquidity without hurting govt borrow plan
* To respond swiftly, effectively to inflationary expectation
* To actively manage liquidity, ensure private credit demand is met
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INFLATION
* Significant changes in drivers of inflation in recent months
* Overall food inflation high despite seasonal ease
* Rise in global commodity prices upside risk to inflation
* Household inflation expectations remain at elevated level
* Demand pressures may rise as recovery gains momentum
* Monsoon prospects unclear, blur FY11 inflation outlook
* Volatile crude prices cloud FY11 inflation outlook
* To ensure price stability, anchor inflationary expectations
* To monitor overall, disaggregated components of inflation
* keeps medium-term inflation objective of 3.0%
* An unfavourable monsoon may exacerbate food inflation
* Unfavourable 2010 monsoon may add to fiscal burden
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GROWTH
* GDP projection assumes normal monsoons
* GDP projection also assumes good industrial, services growth
* Industrial growth to take firmer hold going forward
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FISC
* Fiscal prudence to avoid crowding out private credit demand
* Fiscal prudence must shift to structural improvements
* Govt borrow "very large", can pressure interest rates
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GLOBAL
* Pace of global econ recovery remains uncertain
* Uncertain global econ recovery downside risk to India GDP
* Trade, financial linkages to other economies may impact India GDP
* Commodity price seen up more if global recovery gain momentum
* Rise in global commodity prices may up inflation pressure
* Expansionary fiscal policy may not be unwound in advanced economies
* Expansionary policies may trigger large FX flows to India
* Excessive flows challenge to FX rate, monetary mgmt
* FX rate policy not guided by pre-announced target
* Keep flexibility to intervene in FX market to manage volatility
* Need to be vigilant volatile FX rate movements
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MARKET

* RBI panel to mull single point reporting for OTC FX derivatives
* To launch reporting platform for secondary deals of CDs, CPs
* Asked FIMMDA to develop CD, CP reporting platform
* To allow banks to purchase non-SLR bonds by infra companies in HTM
* OKs bourses to launch plain vanilla dollar/rupee options