M3 To Be In 15-15.5% Range

The slack season monetary and credit policy, unveiled here yesterday, has sought to maintain the expansion in broad money (M3) in the range of 15 to 15.5 per cent during 1997-98. Such a level has been projected with a view to keeping the inflation rate at around six per cent. In his statement released to bank chairmen, the RBI Governor, Dr C Rangarajan, however, has said that the projected increase in money supply may be reviewed and revised depending upon macro-economic developments. According to his calculations, the working estimate of the growth of aggregate deposits of scheduled commercial banks will be placed at Rs 80,000 crore, a growth of 16 per cent.

The expansion in net scheduled commercial bank credit including such investments as in bonds, debentures and shares of public sector undertakings and private companies is envisaged to be of about 20-21 per cent.

The monetary policy measures has been so framed that banks will have adequate resources to meet all the genuine productive requirements of the economy, the governor has said.

On the macro-economic situation, the policy statement says that the extent of RBIs support to the Central government, estimated at Rs 16,000 crore, does not take into account open market operations. The ultimate level of net RBI credit to central government will depend not only on the initial support to market borrowing programme, but also on the passive and active open market operations of RBI, it states.

According to the Governor, wheat procurement during Rabi 1997 is expected to be 12 million tonnes and on the basis of this, food credit requirements are estimated to increase by Rs 3,600 crore during April-June 1997 and decline by Rs 2,300 crore during July-September 1997. Banks must plan their credit operations accordingly, it advises.

In his review of developments during 1996-97, the Governor has attributed the sharp rise in RBIs foreign currency assets to $22.4 billion at end-March 1997 to the upsurge in non-resident deposits and portfolio investments, coupled with a reduction in the current account deficit.

The broad money growth in 1996-97 was 15.6 per cent within the target of 15.5-16 per cent set for the year. Reserve money increased by 2.8 per cent compared with an increase of 14.9 per cent in 1995-96. The lower increase in reserve money last year reflected the sharp reduction in the cash reserve ratio and the decline in the utilisation of export credit refinance by banks.

Aggregate deposits of scheduled commercial banks grew by 15.7 per cent in 1996-97. Non-food credit of scheduled commercial banks grew by only 10.1 per cent during the last year. The depressed capital markets seemed to have played a role in as much as there has to be some balance between debt and equity, the Governor has explained in his statement. The statement also refers to the reduction in both deposit rates and lending rates of interest as also spreads over PLR duing 1996-97.

Also reflecting the easy liqudity conditions last year, there has been a significant softening of money market interest rates.