The RBI announced its Monetary Policy for 2006-07 on 18th April 2006.

The overall stance of the Monetary policy is to ensure a monetary and interest rate regime that enables the continuation of the growth momentum consistent with price stability and overall macro economic stability.

Domestic Developments:

• The RBI has projected the GDP growth for 2006-07 at 7.5-8.0 %, drawing from indications of a firming up of the recovery in agriculture and sustained momentum of expansion in industry and services.
• Inflation to be contained within 5.0-5.5 % during 2006-07.
• Growth in money supply (M3) has increased by 16.2 % (Rs. 3,77,238 crore) in 2005-06 as compared to 12.1 % (Rs 2,42,260 crore) in 2004-05.
• M3 projected to expand around 15.0 % for 2006-07.
• Adjusted non-food credit projected to increase by around 20 percent.
• Deposits projected to grow by around Rs. 3,30,000 crore for 2006-07.

External Developments 

• India’s foreign exchange reserves increased by US$10.1 billion to end at US$ 151.6 billion by end March 2006.
• Export growth increased by 24.7 per cent during 2005-06 but imports grew faster at 31.5% , due to higher increase in oil imports at 46.8 % in 2005-06 (45.2 per cent).

Monetary Developments 

• The bank rate remains unchanged at the benchmark 6.0 %.
• Reverse Repo Rate and Repo Rate kept unchanged at 5.5% and 6.5%, respectively.
• There has been no change in the Cash Reserve Ratio (CRR) at 5.0 %.

Interest Rate Policy 

• The interest rate on savings bank deposits remains unchanged at 3.5 % per annum.
• The ceiling on interest rates on NRE deposits for one to three years maturity raised by 25 basis points  to 100 basis points above LIBOR/SWAP rates for US dollar of corresponding maturity with immediate effect.
• The ceiling interest rate on FCNR (B) deposits was increased by 25 basis points to LIBOR/SWAP rates for respective currency/maturities with effect from March 28, 2006.
• On the recommendations of the Working Group to Review Export Credit, it is proposed to increase the interest rate ceiling on export credit in foreign currency by 25 basis points to LIBOR plus 100 basis points.

Financial Markets 

• A screen based negotiated driven-system for dealings in call/notice and term money market (NDS-CALL) would be launched shortly with participation on a voluntary basis.
• With a view to strengthening the debt management framework, a “When issued”(WI) market in Government securities is being introduced shortly.
• Ways and  Means Advances (WMA) limits  to be fixed on a quarterly basis
• Authorised Dealers to grant extension of time to realize export proceeds up to US$1 million beyond the prescribed six months.
• Advisory Group (Chairman: Shri Mohandas Pai) constituted to review all foreign exchange regulations relating to services and make appropriate suggestions for further clarification and simplification.

Credit Delivery Mechanisms and other Banking services 

• Working Group to be constituted to suggest measures for assisting distressed farmers and introduction of a specific Credit Guarantee scheme for such farmers.
• To identify at least one district in all States/UT’s for achieving 100 per cent financial inclusion by providing a “no-frills” account and a general purpose credit card (GCC).

Prudential Measures 

• Legal amendments proposed to enable all banks in India to avail of the option of public issue of preference shares for raising capital.
• Risk weightage on exposures to commercial real estate increased to 150 % from 125%.
• Provisioning of standard advances raised to 1.0 % for personal loans, capital market exposures, residential housing beyond Rs. 20 lakhs and commercial real estate loans
• While significance of Venture Capital activities and need for banks involvement in financing venture capital funds is well recognized, the higher risks inherent in such exposures need to be addressed. Hence, the banks total exposure to venture capital funds will form a part of its capital market exposure and a higher risk weight of 150% has been given to these exposures.