India cushioned in meltdown, but RBI’s job tough
The RBI said that India, with strong growth drivers, may escape the worst effects of the global financial crisis, but cautioned that managing monetary policy had become complex in the face of slowing growth and high inflation, reports HT Correspondent.india Updated: Dec 17, 2008 22:32 IST
The Reserve Bank of India said on Wednesday that India, with strong growth drivers, may escape the worst effects of the global financial crisis, but cautioned that managing monetary policy had become complex in the face of slowing growth and high inflation.
In its annual report on trends and progress in banking, the RBI said benchmark inflation (currently at 8 per cent) continues to be above the acceptable level, even though it has fallen from multi-year highs of over 12 per cent earlier this year.
The central bank said banks should do a careful review of their lending rates based on change in the inflation outlook, the domestic liquidity conditions and their cost of funds.
Benchmark prime lending rates (BPLRs), to which floating rate loans are anchored, show an upward flexibility under tight money conditions, and the opposite when money supply eases. The RBI said rigidities in downward movement of lending rates does not allow the benefits of easy liquidity conditions to be passed on to borrowers.
The RBI said financial conglomerates (FCs) – in a reference to institutions that operate through a maze of subsidiaries and associates – had increased their influence over the years, causing “systemic turbulence” in financial markets and the central bank was developing a suitable framework to supervise them.