Fuelled by the Reserve Bank of India keeping interest rates stable, the benchmark sensex zoomed for the second day in a row to close at a new high of 11,821.57 points on fund-based buying.

Reserve Bank today kept the interest rates unchanged to sustain the investment boom, as it forecast a 7.5-8 per cent growth with moderate inflation of 5-5.5 per cent for the current fiscal, same as last year.

To ensure that there is no liquidity squeeze, the slack season credit policy unveiled by RBI Governor Y V Reddy raised the interest rates on rupee deposits by Non-Residents and export credit in foreign currency.

This measure is expected to bring in more liquidity in the system by absorbing more foreign exchange.

In the face of upward pressure on interest rates, the Reserve Bank kept the benchmark bank rate — the rate at which it lends to commercial banks — and Cash Reserve Ratio — which regulates liquidity in the market — unchanged.

Reddy also ensured that there was no pressure on short term rates by not tweaking Repo and Reverse Repo — the rates at which RBI buys and sells bonds to commercial banks.

The central bank also retained interest rates on savings bank deposits at the current 3.5 per cent per annum so as not to spur interest rate, but favored deregulation of the rate in the long run.

To boost agriculture credit, RBI simplified and liberalized branch licensing policies for rural banks and set up a working group to address various issues faced by distressed farmers, including review of legal framework for money lending.

Quoting all-India debt and investment survey, the RBI stated that the share of moneylenders in total dues of rural households has increased from 17.5 per cent in 1991 to 29.6 percent in 2002, indicating the high indebtedness of roots. PTI

Popularity: 1% [?]