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BUSINESSBRIEFING

Impact oF moNEtaRy polIcy2009

apRIl 2009 | a cUSHmaN & WaKEFIElD RESEaRcH pUBlIcatIoN

1 Indi: annu mner pi2 previus Exnsinr piains3 RBI ains4 Ithe annu mner i is  sreg uined b he ReserveBnk f Indi  nr ss, su nd vibii f ne wihinhe sse in rder  bne grwh nd infinr ressuresfed b he en. the revius RBI gvernr, Dr. y.V. Redd hdinrdued nrinr iies where he s f funds (ne)ws inresed in rder  uri grwh nd redue infinrressures. cnrinr iies whih ed u iquidi frhe en, ued wih he gb uri resued in grwhderin nd hd rie effes rss  indusries inuding reese. mr. Subbr, reing  he exree ndiins sed b hegb eni reessin nd is ren effe n Indi’s en,hs ded  re exnsinr i. Inernin, fer hvingfied  resre rder vi re nvenin ehds, enr bnkshve resred  unnvenin esures suh s quniive ndredi esing. the RBI n he her hnd hs been hed f heeni urve b king rreive esures  reven  degrwhnd hs enugh “dr wder”

 use wihu resring  heunnvenin ehds where he i f reviving redi fw ndsurring ggrege dend is n esured hisri.

BUSINESS BRIEFING | apRIl 2009

INDIa: aNNUal moNEtaRy polIcycoNtENtS

For more information please contact:Anurag Mathur Cushman & Wakefield4th Floor, Pine Valley Embassy Golf Links Business Park Intermediate Ring RoadBangalore, IndiaTel: +91 80 4046 5555Anurag.Mathur@ap.cushwake.com

REal GDp GRoWtH (%)

1Q (ari – Jun)2Q ( Ju – Se)3Q (o – De)ari - De2007-082008-092007-082008-092007-082008-092007-082008-09agriuure4.434.42.76.9-2.25.50.6Indusr8.55.27.54.77.60.87.93.5Servies10.710.210.79.610.19.510.59.7over9.17.99.17.68.95.396.9

Source:Central Statistical Organisation (CSO)

Unlike believed initially, the Indian economy has not decoupled although it is less reliant on theglobal economy as compared to other emerging nations mainly due to the low exposure towardshigh risk assets in foreign countries and exports being less than 15% of GDP, as per the RBI, thusthe demand being more domestic than global. This, however has not spared India from growth

1: Dry powder - term used to imply possibility of further action.

BUSINESS BRIEFING | apRIl 2009

Impact oF moNEtaRy polIcy 2009

a cUSHmaN & WaKEFIElD RESEaRcH pUBlIcatIoN

moderation or a cyclical downturn as it is still connected to the world economies and the RBI hastaken this into account. After the stellar performance of 8.9% annual average for the 2003-2008 (5year) period, the growth declined considerably in 3Q 2008-09. The RBI has forecasted the GDPgrowth for 2008-09 in the range of 6.5- 6.7%. It has adopted a bearish stance on the growth of the

economy for the current scal year and has set the growth target at 6%. The scal and monetary measures taken during the scal year 2008-09, which were geared to arrest the falling rate of

growth, are expected to show positive effects in the economy over the next few quarters. Whileit is acknowledged by the RBI that private investment is likely to remain subdued it is imperativethat private investment remains strong for the economy to enter a high growth trajectory that waspreviously being followed.

INFlatIoN RatES

Source: IMA

The RBI is now encouraging growth and propagating an expansionary policy in order to stimulate

demand and is more comfortable to follow this path due to the ebbing inationary concerns witnessed in the economy. The Wholesale Price Index (WPI) ination which reached its peak at

around 12.91% in August 2008, witnessed a sharp y-o-y decline reaching 0.26% in March 2009 as

against 7.75% same time last year. The WPI ination further declined in April 2009 to reach 0.18%

and is expected to become negative in short term (early 2009-10) as per the RBI. Although the

Consumer Price Index (CPI) ination is still close to double digit gures, it is forecasted to moderateto comfortable levels as per the RBI in the short to mid term. The WPI ination is projected to bearound 4% by end of March 2010 which relieves India from worrying about deation that developed

economies are trying to prevent. The ample liquidity in the banking system is noted by the RBI andthe fall in credit growth has also been taken into account and prompted their decision in pursuing amore expansionary policy.

I N F L A T I O N R A T E S ( i n p e r c e n t a g e t e r m s )

Wholesale Price IndexConsumer Price Index

BUSINESS BRIEFING | apRIl 2009

Impact oF moNEtaRy polIcy 2009

a cUSHmaN & WaKEFIElD RESEaRcH pUBlIcatIoN

pREVIoUS EXpaNSIoNaRy polIcy actIoNS

Since September 2008, RBI has taken multiple actions in order to ensure that the economy doesnot suffer a massive downturn. The RBI has cut the repo rate by 400 basis points from 9% to 5%,reverse repo rate by 250 basis points from 6% to 3.5% and the CRR by 400 basis points from a highof 9% to the current 5%. Where as the Statutory Liquidity Ratio (SLR) was reduced from 25% to

24%. The RBI has also reprimanded the Banks which have been slow in passing on the benets

of the lower interest rate onto the borrower. It clearly pointed out that the interest rate cuts by thepublic sector banks have been in the range of 1.25%-2.25%, 1%-1.25% for private banks and 1% for

foreign banks. The slackness in passing on benets to the consumers can be seen in a comparison

between reactions of banks to RBI policies in 2004 and 2008. Towards the begining of 2004 theRBI key policy rates were at approximately similar levels although private banks were charging about7.5-8% during that time and are currently charging approximately 10-11% for home loans.

compaRISoN oF polIcy RatES

Source: Reserve Bank of India