Wednesday, November 1, 2006

Monetary policy review

I wrote about the linkage between Economics and Finance earlier. Time to understand it further in view of the review by RBI, our Central Bank.

In its quarterly review of the monetary policy, RBI has enhanced the repo rate by 25 basis points while keeping the bank rate, CRR constant. The repo rate is the rate at which RBI lends to the banks. It is aimed at moderating the stupendous retail credit growth. (The household credit has increased from Rs 31000 crore (approx.) in FY2001 to more than Rs 181000 crore in FY 2006).

But since other rates are constant and there are avenues of raising money thro' External Commercial borrowing(which has been enhanced by $250 Million), experts from the industry do not expect a rate hike for individuals.

Taking tiny steps towards capital account convertibility, the Governor has relaxed remittance rules and allowed retention of entire foreign earnings. Now an individual can remit $ 50000 per year for foreign land or shares*

Foreign exchange earners who could retain 50% foreign exchange can now retain the full 100%.

Signs of confidence along with caution.
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